Answer for:

Outlook 2010 PST Issue

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I got it working. Although I changed the folder to point to the PST file, in File==>Account settings==>Email Accounts in the "Selected account delivers new messages to the following location:", it wasn't working, that is, the mails continued to be delivered to the ost file. The magic was, I restarted my system (as I was installing some other software that required a reboot), outlook picked up the changes too. A restart of outlook would have done this as well.