I should have asked a few more questions, but seeing that you are receiving mail, It must be an account which you can set up in Mozilla ( meaning not a @netscape.net account).
The fact that you are referring to Mail and Newsgroup settings does not tell me anything, but considering that the failure message says:
No sender was specified. Please fill in your email address in the Mail & Newsgroups account settings."
suggests that you don't have an appropriate setup for your SMTP. You should check if the settings in your outgoing mail (SMTP) are correct, and they are matched in your account|server settings|Advanced|
You would be using the same profile used by NS7.1, which is ok, since the profile in the Mozilla folder can be used by either Netscape or Mozilla, with no problem, as long as the older program was uninstalled. This is what I get by your statement that
installed Mozilla App-Suite (with original profile intact)
Do I understand what is going on? I don't even want to talk about authentication.
UserAgent: Mozilla/5.0 (Windows; U; Windows NT 5.1; en-US; rv:1.7.8) Gecko/20050511 Firefox/1.0.4 (ax)