Actually it is a "bug" (or feature?) of PHP. Basically it's due to the *nix background where the machine with PHP usually has the sendmail program installed.
When using PHP on Win32 and trying to use the mail() function, the email server must be on the server with PHP, or you will need to construct a SMTP class to talk directly to your ISP's mail server.
I have written such a class, and need to do some major cleaning up of the code and hope to be able to release it shortly.