After suffering the same problem, a net search provided the answer:
"Sendmail often gets blamed for many problems that are actually the
result of other problems, such as overly permissive modes on directories.
For this reason, sendmail checks the modes on system directories and
files to determine if they can be trusted. For sendmail to run without
complaining, you MUST execute the following command:
chmod go-w / /etc /etc/mail /usr /var /var/spool /var/spool/mqueue
chown root / /etc /etc/mail /usr /var /var/spool /var/spool/mqueue"
Fxed it for me (and sorry about not providing the attribution - I did not note it at the time).