Cannot send emails outside of domain

I have Exchange 2007 setup but cannot send mail outside of the domain.  I use popcon to retrieve email which works perfectly. the problem is that anyone within the organization cannot sent email to someone else within the organization but have no issues sending to anyone whois outside of the domain.  When sending an email to anyone within the org, I get an error message, "The recipient's e-mail address was not found in the recipient's e-mail system. Microsoft Exchange will not try to redeliver this message for you. Please check the e-mail address and try resending this message, or provide the following diagnostic text to your system administrator." I have not created and exchange mailbox for users as I have to migrate individual user one at a time from POP account using outlook 2003 to an exchange account.  I want to be able to move user to exchange and still function without any problems.