E-smith doesn't install sendmail, but there's still a /usr/sbin/sendmail (it just calls qmail instead). The new user signup is supposed to be turned off by default (and all it does is send an e-mail to the admin with the information, unless you change that script), but it does send an e-mail OK on my e-smith system. It gives an error of "bad arguments to implode()", which is a separate issue (and fixed in -pre14, for which I hope to have RPMs available shortly--it was just released today).
I'm not sure why it would be giving you trouble, but I know of at least one other person who's had trouble sending mail as well. Can you send mail normally?