SEPM 11.x: Configure email alserts via Exchange 2010?

Hello.  I recently developed a strong need to reconfigure email alerts from SEPM to go through Exchange 2010 rather than it's current config which is to use the ISP's smtp server for sending them. 

I'm a little fuzzy on mail protocols and Exchange.  From everything I've read, one has to enable SMTP relay on their Exchange server for messages from the SEPM server.  I actulaly don't know how to do that yet, however before going that route I wanted to find out if this is the only way I can get SEPM to get email alerts sent? 

Would this perhaps be something I'd configure in a Receive Connector? 

Also would moving to SEP 12.1 add more features to the email alert function, in terms of options for email configuration? 

Thank you!