When the server was installed, sendmail wasn't uninstalled, it was just disabled. /etc/sendmail.cf still was there. The problem is that when you have .forwards, and local mail programs (like pine), it uses /usr/sbin/sendmail to send the mail. When it looks at where it's going, it will use the sendmail.cf and associated configurations. In Cpanel'd boxes, it notices that the mail is pointed back at itself, but if there isn't anything in sendmail.cf to indicate all the local domains, it'll bounce. But when it sends mail back to the same host it uses sendmail to deliver, not exim, therefore it delivers based on user accounts, not on virtual domains and virtual accounts.
I'm not sure if you can just delete sendmail all together, but having /usr/sbin/sendmail softlinked to /usr/sbin/exim uses exim as the mail transfer agent and it bypasses all the goofy sendmail issues.