IChat & iCal can't authenticate to Lion Server 10.7.2

I've enabled iChat and iCal Server through our local 10.7.2 Server which has DNS set up correctly. I can add the server account via a client's System Preferences (under other - Mac OS X server) and it authenticates with my shortname correctly.
However, when I load iCal or iChat, I get this error message:
iChat can't login to servername.ourdomain.co.nz because your login ID or password is incorrect.
Where the account is [email protected]
The password and username is correct.
Console throws this error:
>22/11/11 3:03:31.135 PM imagent: [Warning] XMPPConnection: Error: Error Domain=XMPPErrorDomain Code=105 "The operation couldn�t be completed. (XMPPErrorDomain error 105.)" UserInfo=0x7f81bbe2a3e0 {XMPPErrorText=service requested for unknown domain}
DNS is set up correctly and we are using a FQDN to connect (it's working for Profile Management, Software Update Server and Web Services) but I can't get iChat or iCal to work correctly.
How can I get clients to authenticate?
I have also asked this question on Serverfault, here: http://serverfault.com/questions/333468/ichat-and-ical-cant-authenticate-to-lion -server-10-7-2

Where are you adding these users? You should be adding them on the Lion SERVER, in the server app, under Accounts -> Users. I presume you are running open directory?
I am adding them on the Lion Server, under Accounts -> Users. 
The usernames have no domain in them. So, example name might be steve. When you are adding a new user on the lion server through serverapp, the user name shown in the box that says "Account Name" is what goes in the user name fields in iCal and address book. Those are added by adding a new account within iCal or Address Book app on the client.
I'm only using the short name to add the accounts on the Lion client. However, both iCal and iChat require a FQDN as part of the login - they amend @servername.domain.co.nz as part of the account. This is normal behavior for both iChat and iCal on Lion Server.
"I can add the server account via a client's System Preferences (under other - Mac OS X server)". Where!? I don't see any other - Mac OS X server on any client. I assume Mac clients? Are you doing Lion server network accounts? Local accounts?
Anyway, the name that is the user name is the short name. There is no domain part. So, not sure why you have a domain part to the name. The domain gores in the server address in address book or iCal.
You're correct - you only add the shortname in the client's system preferences, but iChat and iCal add the FQDN part to the login.
Here is what the dialogue box that I am talking about on the client:

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