Yes it is, and i am using Mail version 3.5 which supports exchange
Yes, Mail.app supports
connections to Exchange servers, but it does not use the same Exchange communication protocol that Outlook and Entourage use.
Outlook and Entourage use Microsoft's closed-source, proprietary Exchange protocol. This protocol is not openly published and documented, and only Microsoft themselves know how it's implemented. Certain companies have reverse-engineered as much of it as possible.
Apple's Mail.app does
not use this Exchange protocol to make a connection to your Exchange server (yes, even when you select "Exchange" as your mail server type!). It uses a combination of IMAP, SMTP and portions of the Exchange protocol. This means that because Outlook and Entourage connect to your Exchange server, the Exchange server is properly set up to accept connections
using the Microsoft Exchange communications protocol. Other applications that do not use this protocol (like Apple's Mail) may need additional support on the Exchange server side.
I said it once, and I'll say it again: I believe troubleshooting this is beyond the scope of this forum, simply because we have no idea how the Exchange server is set up. You will need to get with the guys at your company that manage the Exchange server. You may say, "Yes, IMAP, POP and SMTP are running on the server," but that still gives us no idea how those services are configured -- those services have many configuration options set on the server that may affect how Mail.app connects to the server.
Without that knowledge, we (or at least I) are no longer able to help. It's just impossible without knowing that. If you can get with your Exchange server guys and get screenshots of exactly how the IMAP, POP and SMTP connectors are configured, we can move on -- but simply saying that the services are running doesn't help.