If you are sure Mercury won't at all be connected to the Internet you can consider unchecking all checkboxes in  in MercuryS configuration/Connection control/Relaying control, which will stop having Mercury require authentication for non-local mail. Other than that it's up to the connecting client to handle authentication in a suitable way - either not try to authenticate, or authenticate with a username/password that exists in the AUTH password file (same configuration tab).

Just getting Mercury/32 setup for a simple peer to peer email server, just want send email from one computer to the server to another computer on the LAN (no internet).

Trying to telnet in to check the SMTP functionality, I am having trouble logging in, while trying to figure it out I keep getting "535 Authentication Failed, to many invalid logon attempts" after a few failed attempts

I can't seem to find anywhere where I can increase the number of attempts or even turn off the checking for attempts?

 Anyone have any idea how or where to do this.