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I'm no IMAP expert, but have you, in Outgoing Settings, checked "Require Sign-in" and entered a valid username and pasword? Without that, most mail servers will indeed reject an attempt to send through them.
I'm glad all (or at least mail) is now well. I've had my droid for about a week and loved it, except that my outgoing mail would not work. Problem was solved yesterday, thanks to help from Motorola (Verizon couldn't do it), so I know how frustrating it is to have a fatal problem with an otherwise really nice phone. Happy Thanksgiving.