For an SMTP mail setup, you usually have to set the mail server settings. Normally (in my experience) this is not localhost, but rather something like mail.yourwebsite.com with the username/password you use to log into your mail account.
Server specs (Server OS / Apache / MySQL / PHP / DragonflyCMS):
Win, Linux/1.3.34/4.0.26, 5.0.19/4.3.10, 5.1.2, 8.1.4(PostgresSQL)/184.108.40.206, CVS
Joined: Aug 18, 2004