You'll probably need to look at the logs for the Job Server Child processes to see what the full error is. If you have a cluster with multiple job servers, you'll need to look at the failure info for the report to determine which server's logs to look at.
It sounds like the report is running correctly, but there's an error when the SMTP part for the notification occurs. I would also try testing to see if a schedule to an email destination will run successfully.
Assuming that you're using Exchange for your email server, have there been any security changes for it recently? I've seen situations where Exchange has to have a rule set up to specifically allow SMTP requests from the BusinessObjects servers in order to successfully send emails.
-Dell
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