So thanks everyone for you help.
I will post the actual fix for this problem as it was rather strange.
First thing is that if you didnt select the option to support outlook 2k3 or entourage during the initial install of exchange 2k7 then you will need to manually create the "exchange" virtual directory in iis so that if people point to
https://mail.mydomain.com/exchange the are able to hit OWA.
after you have done this in the entourage configuration for server address you need to put in a non standard address:
https://mail.mydomain.com/exchange/user@secondarydomain.comyou also must indicate their correct email address in the address field i.e.
[email protected]Once you put in these settings it magically connects and everything works.
Wow this took a lot of digging and i even called MS support although in the end they were not able to help me. Way to go MS.