Here are some excerpts from the replies I received. See who was on the machine at the time. If the logs are empty, I'd start getting worried.
Email is generally unauthenticated.
Any user that has access to telnet can forge email from any address. On investigating I found out that hotjava was used for sending this mail. The log files on this machine were empty and I had only the ip address on the server to arrive at some conclusion. Working on intel platform with Solaris 7. On my LAN sendmail daemon is stopped on all machines.