How can I set up a local mail server on Lion?
Lion Server isn't released as a separate OS anymore, so if you're concerned about having to upgrade your entire OS, that isn't necessary. The server programs are distributed as an add-on to a regular Lion install, for $50, through the App Store.

There are also ways to do this for free. Being somewhat unfamiliar with running email services on MacOS myself, I would probably just configure a Linux VM and run it in Parallels (or Virtualbox if you don't have it already). A quick google search also reveals that there are a bunch of other options too, such as http://cutedgesystems.com/software/MailServeForLion/