ok.. First of all, I have (but I'm not the only one) many users with SME and Outlook and I can assure you that they can work together.
so:
- be sure you enable SSL in outgoing server properties (and enable the "use SSL" or similar checkbox) in outlook account properties
- you'd have a warning about the server certificate
- if you're trying to setup the account and the test email fails, it's a known (and never patched) bug in test procedure in outlook, which sends a bad formed email (it lacks the Date: header) and so SME is refusing it
- take a look at /var/log/sqpsmtpd/current file to see what's goin on