Hi all I am wondering how to go about setting up a secure chat
room that me+colleagues can use. Totally new to this sort of
thing so any and all suggestions welcome.

Only restriction I'm working to are that the backend must be GPL
software or utilities that can run on the following:

debian Sarge with 2.4 Kernel
AMD Duron 800Mhz, 512Mb RAM, 80Gb HDD
on DMZ of firewall with a single external static IP address

I'm admin for both server and firewall

What I would like to do is have all the traffic encrypted and have
discovered that TLockbox 2.0.7 components for delphi will allow
for Blowfish encryption, if I were to knock up a delphi Win32 client.
(I would like to work with a linux client as well but my colleagues
are on Win 2000 / XP at present)

All the best

Have a look at Jabber . You can setup your own Jabber server or you can get "a private room" at Jabber. Gaim works well with it and the w32 client work with it. I am subscribed to a room for a group I am doing work for, on strangely, Cornish Census records.

Thx for the reply TigerOC, will give Jabber a good look!
Conish Census records, hehe sounds like synchronicitiy to me