SMTP Set up - where do I configure mail accounts on Windows Server 2008?

The Windows Server SMTP feature doesn't allow you to create accounts, store email in inboxes, or deliver email to your Outlook clients. It's simply a SMTP forwarder.

If you want to create mail accounts for [email protected] and similar, you're looking for Microsoft Exchange or another full featured mail server.

The SMTP role on Windows Server is meant so that applications can send email from the server that they are running on. It is not meant to be a replacement for Exchange, Zimbra, etc. As a matter of fact, this role been deprecated in newer versions of Windows because it hasn't been terribly useful to most people for quite a while.

To answer your specific questions:

I use Outlook as mentioned but when trying to set my email up ([email protected]) it asks for a username and password (I have not created a username and password, or this email in effect? Do I use the username and password used to log-onto the server?

You would use Active Directory users for this and assign them a mailbox through the Exchange management tools. You can't do this using Microsoft tools without Exchange and AD.

Am I right in thinking once you've set up and configured a domain and an SMTP server for that domain, you can go ahead and use [email protected] as an email address? And the username and password is infact the username on the server E.G Administrator and the password is the one you created to log into the server.

Nope. That's not right. Exchange leverages Active Directory users for this. It's not local users on the server.

I have used an email.rbs (I believe it was .rbs) file that stated "email sent" so I know SMTP is working.

The mail was "sent" but likely marked as spam immediately by the receiver if you don't have things like MX, DKIM, and rDNS in place.

Microsoft Exchange in itself is a mail server, which is what I have set SMTP up for myself, to avoid needing this and its cost right?

Nope, you need Exchange here (or another mail server.) Exchange is the most common mail server on Windows, though you do see Domino from time to time (shudder).

I have also tried to use smtpdiag.exe to get a black screen flash of the window but the .exe will not open.

That is a command-line tool. You need to launch it from a command prompt. The executable is in fact launching, completing, and exiting, which is the black flash you're seeing. If you launch it from within a command prompt or PowerShell environment, the window will not close immediately and you can inspect the output.

Please take it lightly on me, this is my first time configuring a server and I'm learning slowly.

Good Luck!