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I guess the argument for inbound blocking is that its way too easy to configure an open relay which is then used to send spam.

But the outbound block would prevent the relay from sending any mail over port 25, so there's no real point to block inbound connections.

I'm thinking the ISP in upstate New York misunderstood the situation in a way similar to the comment above you.

I've no argument beyond that. You're right.