iChat can't authenticate to Lion Server 10.7.2
This question was answered on Apple Discussions. In short, the server was misconfigured to have the Jabber Domain set to the local DNS name - rather than a FQDN. 

The problem was fixed by issuing the following terminal command:


  sudo serveradmin settings jabber jabber:hosts:_array_index:0 = "servername.domain.co.nz"


You can check this discussion for full details. Thankyou sfatula on Apple Discussions for the solution!