A big thank you to everyone who responded. Useing the sugestion on telling my mail server that everything for localhost is regarded as local I was able to resolve the problem.

That section of my configuration was found in the Configuration menu> Mercury cor Module configuration> localdomains Tab where I had to add localhost to the list. This solved the problem.

It was asked what server software I was useing, I am useing a Mail Transport System called Mercury/32 for Win32 and NetWare Systems v3.31 (Not the latest version, I will update soon)

However since this post, I decided against the AK-Mail email client for sending and recieveing my mail, instead I downloaded Pegasus Mail which is the recomended client to use with Mercury. You may download the latest versions of both Mercury MTS and Pegasus Mail for Windows systems from http://www.pmail.com/downloads_nz_t.htm

I assume you could easily use Outlook express for mail retrieval and sending too.