The first thing you need to remember is not to check from the same host/server itself.  This is a silly mistake I made, the reason is that many mailservers and especially postfix are configured to allow relaying from the localhost/same host.  If you do that you'll get a false positive.

*Make sure you test from another host/system than the mail server itself!

telnet yourmailserverhost.com 25

220 Courier (FreeBSD 6.0)

helo server.amil.com
250 mail.cm.com
mail from:<jkd@jk.com>
250 2.1.0 Ok
rcpt to:<joe@hotmail.com>

You should get an error message like this now:

554 5.7.1 <dkdkd@hotmail.com>: Relay access denied

If you get this instead you have an open relay and have to fix your mailserver.  It should only allow mail to other destinations IF the user has logged in successfully.

250 2.1.5 Ok