I just got Outlook 2007. I am running it on an XP machine with SP2. I am
getting mail okay, but when I try to send a message I am getting an error
message that states "the user is not local". This machine is on a domain,
but it is not on an exchange server. The e-mail is set up through a pop 3
account.

ARE you set up on a domain, and if so, is that intentional? Are you
on a work computer, configured by I.T.?
If you are not part of a business network (by which I mean a big
business where a bunch of I.T. people set up everyone's computers),
you probably should not be set up on a domain (and it has nothing to
do with home or small business networking with simple routers).

To check/change this, right click "My Computer" on the desktop or from
the Start menu, and select Properties from the context menu.
The System Properties dialog opens.
Click the Change button, about 2/3 down, on the right.
There is as group box near the bottom called "Member of," and it will
either show you as being in Domain or a Workgroup.
If you are listed in a Domain, select Workgroup instead.
You can probably leave the default Workgroup name; click OK.
I'm not sure--you may need to restart the PC after this, or maybe at
least log off and back on.

See if that helps.