We have an HPUX machine that is having a routing problem. Any traffic sent on the local network (same switch) works fine. However, when we try to send traffic to any other ip the machine NAT's the ip to that of the gatway and nothing goes any further.
For example if I try to ping 10.1.1.1 from the HPUX machine, a sniffer on the network shows that the machine tries to ping the gateway address instead.
Also, if any machine off the network tries to ping the unix server, the replies get translated to the address of the gateway and do not get sent back to the sender ip address.
Please advise.
From the modest amount of info that you provided I would guess that you're misinterpreting the output from the sniffer. The ping must go to the gateway in order to be forwarded to the true destination. When you ping an outside address and observe the packet go to the gateway, does the gateway respond?
To clarify: What is happening is that the ip address leaving the machine, if not on the same network, always gets translated to the ip address of the gateway, so that traffic never gets beyond that point.
When I plug in my windows laptop to that network port and use the ip of the unix machine, everything works correctly, the ip addresses don't get changed. My windows machine can ping remote addresses and get beyond the gateway. The same is true for a Solaris machine on that same switch. Traffic can be detected going from the Solaris machine to machines on other networks - for example, I can successfully ping Yahoo, Cisco, Google..etc. and I can see those destination addresses in the sniffer.
On the HPUX machine however, if I ping Yahoo, Cisco, Google or another network on our VPN link, the destination coming from that box always shows as the gateway interface. 
That's a wierd one. I would switch ip addresses between the hp and sun. If the problem follows the ip address to the sun, you know it's something external. If the problem stays with the hp system, it must be on the hp.