I have the same problem.
I have just upgraded to 1.3.7 (including databse)
and tried a test order, pay by check, and, acting as a customer got
"email error:could not execute /usr/sbin/sendmail"
permissions on class.phpmailer.php are they are.
owner/ read write
group/ read
others/ read
I cant say what was happening before upgrade, cos I couldn't even register a customer on the previous version...it just kept returning
create customer page, although that was when I had a shared SSL, and I am not using one at the moment just to keep it less complicated.
if the error is "could not execute" do I need to change the permissions?
Only guessing,
cheers




