OK a real brain teaser

I have small business server set up at a job site. The set up is to a dynamic POP account to the exchange. (yes all patches are installed). Now here lies the problem, I can't get exchange to deliver the mail from the pop accounts. The global contacts/address book works, so I know exchange is working (tested by sending via global names such as b_cat.local and its their in a nano second. I have also contacted the ISP to ensure that they don't have port 25 closed. I can telnet to both port's 110 and 25. I did come up with a work around, I entered each users pop account on their machine and set outlook to send and receive via pop on each machine, this works but it's not the way its supposed to work. I also have application log error issues the same 3 errors over and over they are all located on pop and are 1019, 1023 and the big one 1036. I have triple checked all passwords, I have created a master host file with the ISP's email server IP address in it. I have also uninstalled and reinstalled the pop wizard. Any more ideas?