It's at times like these that I wish my response was accompanied by an animated GIF of me banging my head against the desk. Because that's exactly the kind of reaction I have to Outlook's terrible syncing support. But let's both take a couple of deep breaths and proceed.

Unlike Entourage, Outlook doesn't offer an option for syncing calendar events (you can sync contacts, however). This is a feature that's been promised for a future Outlook update but Microsoft hasn't said when we might expect that update. And, as you've discovered, iCal looks at .olm archives and shrugs its virtual shoulders. But there is a way--tedious and tiresome, granted, but still, a way.

That way is to select an event within Outlook's calendar and drag it to the iCal icon in the Dock (or, if you like, drag it to the Desktop and then drag it into iCal). This dragging business converts the event into a .ics file, which is compatible with iCal.

Regrettably, you can do this with only one event at a time. You do not have the option to select all events in a monthly calendar or even Shift- or Command-click multiple events. It's one at a time or nothing at all.