Fixed it by rebuilding.
Steps:
1. in server admin - turned off ichat server
2. in server admin - deleted the host domain from ichat:settings:general
see:
http://discussions.info.apple.com/message.jspa?messageID=11170573#11170573
3. in terminal - deleted the user database (which automatically rebuilds an empty database)
sudo rm /private/var/jabberd/sqlite/jabberd2.db
4. in server admin - turned on ichat server
5. in terminal - repopulate the database (a pain)
sudo jabber_autobuddy -i address1@host.mydomain.com
sudo jabber_autobuddy -i address2@host.mydomain.com
etc.
6. in terminal - autobuddy everyone in the user database
sudo jabber_autobuddy -m