Mail could not be received at this time. The server for account returned the error logon failure: unknown username or bad password

Is your exchange configured to allow relay by IP as well as via authentication?
Is this MAC configured to use the AD?
make sure that the outgoing part of the email configuration includes the authentication mechanism i.e. use authentication, use the same account as the one for receiving emails (Advanced settings).
http://www1.umn.edu/adcs/help/email/EntourageMacX.html

I'm not sure about the relaying of IPs but our macs definitely aren't configured to use AD. Whenever we set up an account in entourage, the entourage application automatically gets the ldap information without us having to define OUs. I'm slightly reluctant to follow the advice on that umn link for two reasons; the link was for imap accounts (not exchange) and on any mac, I can set up any account except one particular user so I'm not entirely sure if it's network related. We haven't made any changes to our exchange server other than windows updates and no changes at all to our network so I'm pretty sure that any network failure to relay authentication would suddenly affect only one user. Hope this doesn't sound like I'm trashing your suggestion :) This seems to point to some problem with the user's mailbox on the server. What do you think?

Thanks Arnold. I had mixed success. I was able to set up the user's account as an imap rather than exchange. The only thing is, the subfolders of the inbox don't automatically show on the left hand side in the folder list expanded under the inbox folder. I tried creating a custom view but didn't have much luck. Can you advise on this?

Thanks for all your help Arnold. The imap route was a good workaround. Eventually I realised that the user's mailbox was listed against two AD accounts so I sort of solved my own 'self created problem' but your imap suggestion probably pointed me there and was helpful so thank you very much for your help.

I think IMAP is an exchange account equivalent. Imap grants you access to the emails, but all the emails remain on the server.
You may need to tell the imap account to synchronize which I believe is when it will check the setup on the server and will make the other folders available.  I am uncertain on whether public folders if any will be part of that.