Ok. I reinstalled the test sql box. Setup outlook2k using a agent domain login it is a domain admin it has a mailbox I can send and recive mail with outlook I created a default mail profile copied it to sqlagent and deleted it. I can't send mail via xp_sendmail nor does the backup reporting send me a report BUT the job secheduler does send me email:
JOB RUN: 'DB Backup Job for DB Maintenance Plan 'DB Maintenance Plan1'' was run on 7/12/2001 at 2:02:00 PM
DURATION: 0 hours, 0 minutes, 3 seconds
MESSAGES: The job succeeded. The Job was invoked by Schedule 1 (Schedule 1). The last step to run was step 1 (Step 1).
This tells me that mail is running and some part of sql can talk to it like the sqlserveragent. I just don't know what else to look at. this is a clean install all the way around.