I as well initially couldn't redirect my mail to an external address so I could read it via Mail.app, (ISP didn't like mail coming from jaguar.localhost)

What I did was to reconfigure the sendmail.cf file (see http://www.macdevcenter.com/pub/a/mac/2002/09/10/sendmail.html?page=2) with these additional directives:

MASQUERADE_AS(mydomain.com)dnl
FEATURE(`masquerade_envelope')dnl
FEATURE(`masquerade_entire_domain')dnl

Then edited the resulting file to add a valid domain name to the line beginning with DM as in DMvaliddomain.com