After several weeks of wrestling with xp_sendmail failing with the error 'No such user or group (sqlusername)' it has been resolved. The error only showed up when the @query parameter was also in use. The solution was easier than I thought, each of the xp_sendmail commands that used the @query also needed the @dbuse parameter added.
This all started happening after I moved the system databases off of a mountpoint to a drive letter.
The company I work for runs on SQL2000 mainly, in the process of upgrading to SQL2008. Not sure what the actual cause of the change in behavior was but it has been resolved.