I decided to send the Transactional emails via my GoDaddy exchange server and everything is working now in Azure. Before doing that I also tried SendGrid but emails where getting blocked by Outlook.com
Microsoft states in the linked article above:
<< We recommend using an email service to send email rather than SMTP. SMTP is difficult to configure and secure properly.
I am using "smtp.office365.com" and it's working fine. Not sure why Microsoft leads you in the direction of ManDrill. I am open to someone elaborating on why Microsoft does this.
Thank you