Thanks for your reply, but a working Mail Server (on the iCal server machine) is not required for this to work- iCal Server uses the included credentails to be a mail client in this scenario. For more information see
https://help.apple.com/advancedserveradmin/mac/10.7/#apd39E18CC8-14C3-4B99-87F8- A9651007DA8E
I have found a walkthrough here-
http://www.coresolutiongroup.com/wordpress/?p=27
but it is for v10.6. The best result I have been able to get so far on a test server is using an iCloud address as the send and receive emil address, with the following errors-
2013-07-15 16:35:01+1000 [-] [mailgateway] 2013-07-15 16:35:01+1000 [IMAP4DownloadProtocol,client] [twistedcaldav.mail.IMAP4DownloadProtocol#error] IMAP Error: [Failure instance: Traceback: <type 'exceptions.KeyError'>: 'RFC822'
2013-07-15 16:35:01+1000 [-] [mailgateway] /System/Library/Frameworks/Python.framework/Versions/2.7/Extras/lib/python/twis ted/mail/imap4.py:2455:_defaultHandler
2013-07-15 16:35:01+1000 [-] [mailgateway] /System/Library/Frameworks/Python.framework/Versions/2.7/Extras/lib/python/twis ted/mail/imap4.py:382:finish
2013-07-15 16:35:01+1000 [-] [mailgateway] /System/Library/Frameworks/Python.framework/Versions/2.7/Extras/lib/python/twis ted/internet/defer.py:361:callback
2013-07-15 16:35:01+1000 [-] [mailgateway] /System/Library/Frameworks/Python.framework/Versions/2.7/Extras/lib/python/twis ted/internet/defer.py:455:_startRunCallbacks
2013-07-15 16:35:01+1000 [-] [mailgateway] --- <exception caught here> ---
2013-07-15 16:35:01+1000 [-] [mailgateway] /System/Library/Frameworks/Python.framework/Versions/2.7/Extras/lib/python/twis ted/internet/defer.py:542:_runCallbacks
2013-07-15 16:35:01+1000 [-] [mailgateway] /usr/share/caldavd/lib/python/twistedcaldav/mail.py:1870:cbGotMessage
2013-07-15 16:35:01+1000 [-] [mailgateway] ]
2013-07-15 16:35:07+1000 [-] [mailgateway] 2013-07-15 16:35:07+1000 [-] SMTP Client retrying server. Retry: 4
2013-07-15 16:35:37+1000 [-] [mailgateway] 2013-07-15 16:35:37+1000 [-] SMTP Client retrying server. Retry: 3
2013-07-15 16:36:07+1000 [-] [mailgateway] 2013-07-15 16:36:07+1000 [-] SMTP Client retrying server. Retry: 2
2013-07-15 16:36:37+1000 [-] [mailgateway] 2013-07-15 16:36:37+1000 [-] SMTP Client retrying server. Retry: 1
2013-07-15 16:37:07+1000 [-] [mailgateway] 2013-07-15 16:37:07+1000 [-] [twistedcaldav.mail.MailHandler#error] Mail gateway failed to send message <20130715063407.11326.510275375.0@mini.xxxsss.com.au> from adam.connor@xxxxxxx.com.au to mailto:Adamc@yyyyyyyy.net.au (Reason: User timeout caused connection failure.)
2013-07-15 16:37:07+1000 [-] [caldav-0] [AuthorizedHTTPGetter,client] [twistedcaldav.scheduling.imip#error] Could not do server-to-imip request : <twistedcaldav.scheduling.imip.ScheduleViaIMip object at 0x10ead8610> 400 Bad Request
2013-07-15 16:37:07+1000 [-] [caldav-0] [AuthorizedHTTPGetter,client] [twistedcaldav.scheduling.scheduler.ScheduleResponseQueue#error] Error during PUT for mailto:Adamc@yyyyyyyy.net.au: iMIP request failed
But unfortunately I don't really understand this error. it could be related to SMTP sending or be local (server) related. Thans for your reply, if you have any further help I would appreciate it!