[Exim] local_domains not recognised

I'm having some problems with mail delivery from the local

    mail server. Everything works correctly; and when I send
    a mail to myself it works fine; but if I send one from the
    mail server it is frozen and a message sent to postmaster,
    which is then frozen and another message generated and
    so on.

    These are the error messages I'm seeing:

2002-11-05 17:24:08 1895Ym-000Obh-00 == dave@???
R=lookuphost defer (-1): lowest numbered MX record points to local
host

2002-11-05 17:24:08 1895Ym-000Obv-00 ==
postmaster@??? R=lookuphost defer (-1): remote host
address is the local host

    Which are right, as both errors are true. But it should just
deliever the
    email as if it was from outside; how else do users on the
mailserver
    mail each other?

    Have I done something wrong here?

Thanks
Dave