How do I send a meeting request from Mail.app (ical) to entourage/outlook users?

first thing that comes to mind, try changing the default mail app in mail itself, in the preferences window of mail

You can use the attendees feature in iCal on Leopard and that will email people an ics file. Outlook 2003 will open up the attachment and show the details of the meeting, but it doesn’t seem to let a recipient put the meeting on his/her calendar though.

That sounds like an Outlook issue, and more than likely one done purposely to force people to use their crap. Perhaps not, but Microsoft has never been about inter-operability.