just to add to this (I agree it sounds like sendmail is not installed). Run these commands:

sudo apt-get install sendmail

and then you have to configure sendmail. Just choose the default answers to continue through each question and you should be fine:

sudo sendmailconfig

that should do it, but if not try rebooting:

sudo reboot

@sierracircle @aguilar1181

Just out of curiosity why do i need send-mail when the WP-Mail-SMTP plugin tests email works fine on Live?

I did use a simplified version i used this . http://wordpress.stackexchange.com/questions/95016/wordpress-refuses-to-send-mail-your-host-may-have-disabled-the-mail-funct and it still did not work.

Also it doesent explain why because my plugin works in local environment and not live,.

Trouble-shooting can be a lot of work.

I would ask myself these questions:

does ContactForm7 work on my remote server?
if not, then does it work just using phpmail?

does my local environment match my remote server? (same OS version, same packages installed?)
if not, what are the differences?

Might help to disable WP-Mail-SMTP and see if it works with regular php mail..

If i do the above i would just need to install and configure sendmail correct? Would i be right in saying wpmail only works with smtp which means i cnt use wpmail with sendmail?

I tested Using Contact 7, again it works locally but not live. I have pretty much the same setup. Ubuntu 14.04 both local and live same packages

So i just tried the Wp-SMTP plugin test email again and this time its returning back false. here is the debug.

["language":protected]=>
array(18) {
["authenticate"]=>
string(35) "SMTP Error: Could not authenticate."
["connecthost"]=>
string(43) "SMTP Error: Could not connect to SMTP host."
["datanotaccepted"]=>
string(30) "SMTP Error: data not accepted."
["emptymessage"]=>
string(18) "Message body empty"
["encoding"]=>
string(18) "Unknown encoding: "
["execute"]=>
string(19) "Could not execute: "
["fileaccess"]=>
string(23) "Could not access file: "
["fileopen"]=>
string(33) "File Error: Could not open file: "
["fromfailed"]=>
string(35) "The following From address failed: "
["instantiate"]=>
string(36) "Could not instantiate mail function."
["invalidaddress"]=>
string(15) "Invalid address"
["mailernotsupported"]=>
string(25) " mailer is not supported."
["provideaddress"]=>
string(54) "You must provide at least one recipient email address."
["recipientsfailed"]=>
string(45) "SMTP Error: The following recipients failed: "
["signing"]=>
string(15) "Signing Error: "
["smtpconnectfailed"]=>
string(22) "SMTP connect() failed."
["smtperror"]=>
string(19) "SMTP server error: "
["variableset"]=>
string(30) "Cannot set or reset variable: "
}

Could digital ocean be blocking the port or some sort of permission issue?

wp-mail uses phpmail, UNLESS Wp-SMTP plugin is installed, which tells it to use the SMTP server instead.

It could be the ports blocked lik eyou mentioned. you could do:

 sudo iptables -A INPUT -p tcp -d 0/0 -s 0/0 --dport 465 -j ACCEPT

if you have UFW installed you want to do:

sudo ufw allow 465

who is the SMTP server you are using?

I use a google apps account (same as gmail) with my server, and it works fine.

host: smtp.gmail.com
port: 465
Yes, use authentication
username and password are to the google account

...slight update: I just changed one thing on your script and it works for me:

line 34

                    echo '<form class="contact-form" action="/#contact" method="post">';

changed to:

                    echo '<form class="contact-form" action="/contact" method="post">';

now works fine. I have a page named /contact, which is where I inserted the short-code

The # was because i was using smooth-scrolling as i had a 1 page app.

I now understand the problem after speaking with DigitalOcean Support team. It seems that live.smtp has blocked digitalocean IP's. So this is why it was not working. I will now have to use a 3rd party app and make use of there free service e.g. https://mandrill.com/

Thanks for pointing out Mandrill. I have a few clients who send Newsletters. Running up against SMTP sending limits is always a pain. Looks like Mandrill has free up to 12000 a month, with reasonable prices after that.

Again ive managed to get gmail working on local, but not on live. :/ This is such a pain!

smtp.gmail.com
port: 465
SSL
Yes, use authentication

any luck with this yet? Have you tried opening ports?