Ok, I can send and recive mail from the outlook client. I stopped and restarted the services I attempted to send mail via xp_sendmail and get this

Server: Msg 18025, Level 16, State 1, Line 0

xp_sendmail: failed with mail error 0x80070005

I'm at win2k sp2 sql2k sp1 outlook2ksp1. I'm rebuilding the test box now to see if there is something diffrent with the test and production configs. I don't think so though.