I use outlook connector along with Outlook 2003 to send and receive mail through my hotmail/live.ca mail accounts.
In Outlook 2003 using Tools, Option and Others Tab, Advanced Settings.
I changed the "Startup in this folder" from the Personal Folders Inbox to one of my live.ca hotmail accounts Inbox. Ever since then, the error message would appear (Outlook 2003 error 0x80040126) when I tried to send mail. Don't know why this happened. But changing it back to use the Personal Folders Inbox fixed this issue, at least for me. However now I have to look at this stupid Usless Personal folders section when there is no way to delete it or remove it.