The saslauthd daemon needs to be running for the SMTP AUTH capabilities to work. I did not see this documented in any obvious places. What would be useful is to put this in the comments in the sendmail.mc file that ships with Fedora. Preferably in the area of the file where you can uncomment the lines dealing with SMTP AUTH.
Fixed in rawhide in rpm sendmail-8.2.11-2 or newer.
I assume that is sendmail-8.12.11-2 or higher (changed 8.2... to 8.12...) Thanks!