So anyone able to point out the obvious or not so obvious config mistakes?
I see no mistake. Make sure you have the sendmail-cf package installed, else the .cf files can't be rebuild based on modified .mc files. Make too sure that you have the necessary cyrus-* packages installed.
Regards
Alexander
Sorry, missed to note that for your issue it is important to have following 2 settings in your sendmail.mc as well:
FEATURE(`no_default_msa', `dnl')dnl -> this is default in the sendmail.mc shipped with CentOS
DAEMON_OPTIONS(`Port=submission, Name=MSA, M=Ea')dnl -> this is commented out with a leading dnl in default sendmail.mc the important part is the modifier "M=Ea": the "a" bit enforces the requirement for AUTH on the MSA (port 587)
Alexander