“authentiacation failed using mechanism DIGEST-MD5” is a generic exception message, that pre Smack 4.0 versions always throw and 4.0 sometimes throw when SASL DIGEST-MD5 failed for whatever reason. That’s why you find many topics about Smack and this error message.
The exception does not reveal the real cause why this SASL mechanism failed (if any). With (a)Smack 4.0, the situations has improved.