Yes permissions 557 is a problem.
There is a default security check parameter set in sendmail. Hence if directories ( /, /etc, /etc/mail) above the file " /etc/mail/aliases" in this case are group or world writable, then sendmail will flash the similar error message.
So change the /etc permissions to 555.
Similary ensure the permissions for
/etc/mail/aliases bin:bin 640
/etc/mail/aliases.db root:sys 640