I solved it! Panther comes with the application Postfix which can be used in place of sendmail. I downloaded an application called Postfix Enabler. It very easily sets up SMTP, POP3, and IMAP services (with or without SSL support). This only works on OS 10.3 (Panther) and doesn't work on OS X Server.
I only wish I had known about it earlier. It took me less than 10 minutes which is better than the hours (and hours) I've been putting into trying to get sendmail to work.
Just something to keep in mind for anyone else trying to get the email function to work on OS X.
