If you are sure the account settings are correct (it wouldn't harm at all to delete the account and add it again, manually this time in stead of importing it!) I'd try totally uninstalling AVG (for experiment), not just turn it off. Also disable your firewall (you didn't tell which one). It might just block Outlook; that's what most firewalls do, blocking outgoing programs and it's a very good reason to not connect.
I assume (although you don't tell explicitely) that Outlook Express still works fine? You write in the past "worked fine". That leaves only the settings and the interaction of antivirus or firewall with Outlook 2007 as possible causes, reasonably speaking.
Kees

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