I have a small script which im using to test PHP mail(), as below:
The problem is with your sendmail server configuration. If youre testing this script on your personal development environment, don't worry about it. It can be a pita to setup/configure a sendmail server. If you're having this problem on your production server, the simpliest solution is to use a mailer library that has an smtp option (allowi g your email to be sent to an external smtp server for processing/delivery).
Here is a guide on using a 3rd party smtp mail script... http://email.about.com/od/emailprogrammingtips/qt/PHP_Email_SMTP_Authentication.htm