Outlook 2002 won’t send as TS Client

I just set up a Windows Server 2003 as a terminal server. I installed Office XP Pro. When I try to send a mail from Outlook XP through a SMTP server (working fine) the mail stalls and times out at the point the data is requested. Outlook Express works fine.
If the same user logs on to a standard workstation using Office XP installed identically to the Terminal Server (using the same Group Policy) mail gets sent no problem.

The email server is running on Windows 2000 Advanced Server that is also running the 2003 TS Server as a virtual machine.

Anyone got any ideas? I’m stumped.