It appears the workaround of editing the /etc/hosts file as suggested earlier works. For those less technically inclined this is how to do it:
1. Close Mail. Wait a few seconds and then open it back up. Got to Preferences - Accounts. Select your Exchange server entry and see what value ML insists upon putting in Internal Server. Write this down somewhere.
2. Open up Terminal. Type "ping server.domain.com" (no quotes) where server.domain.com is the value that you previously used in the Internal Server setting for Mail. If you're lucky the server will respond at least once. Write down the IP address (xx.xx.xxx.xx).
3. Open up Finder. Select Go-Go To Folder menu. Enter /etc in the dialog and click Go. Find the file named "hosts". Copy it to the Desktop.
4. Open up the "hosts" file on the Desktop in TextEdit. At the end enter the Internal Server name you wrote down in step 1 on the left. A few spaces over on the same line enter the IP Address you wrote down in Step 2. Save the file and close TextEdit.
5. Drag the updated "hosts" file on the Desktop back into the Finder window display the /etc directory from Step 3. You will need to authenticate with your password. Be sure to select the replace option.
6. All the Exchange enabled apps should work now.
What this does is tell the OS that "server.domain.com" should resolve to the IP address of the actual external server you want to use ... rather than the IP address it actually has. You've basically "tricked" the system in order to get around this boneheaded change. So far I haven't seen any issues. Emails in the Exchange inbox sometimes disappear ... but I have the feeling that's a separate bug. Switching from one mailbox to another and coming back often fixes this issue. Restarting Mail seems to fix it consistently when it occurs.