Currently my setup is as follows:

Windows client desktop with outlook sends email to smarthost. The smarthost then forwards email via internet to recipient.

The smarthost in question is a Windows 2003 server (obviously running IIS) and this is only outbound - there is no inbound email. What I want to do is change the smarthost to a RHEL 6.4 server running sendmail.

Can this be done, and if so what configuration steps are required on the RHEL server to get this to work?

Yes, this is trivially easy to do. The only issue is that you may have to alter sendmail.cf, a configuration file so cryptic, the recommended method to perform alterations is to use a separate macro file.

However, you probably won't have to touch sendmail.cf at all. If the "access" feature is enabled (and it usually is), you should find a file called simply access in your /etc/mail directory. By creating entries in this file, you can allow relaying on a per-domain or per-network basis, as well as allowing relaying from specific IP addresses.

For instance, ff your internal network is 192.168.10.0/24, the following line should be added to /etc/mail/access:This file is not parsed directly by sendmail. Instead, it's converted into a database file called access.db, which has a format sendmail can relate to. To do this, simply run the make command from within the /etc/mail directory:The changes will take effect immediately, and the PCs on your internal network should now be able to use your sendmail server as an outgoing e-mail relay.