I'd like to back up and store my work contacts on my mac. However, I don't
want to mix my work contacts into my personal contacts. Is it possible to set
up separate contact databases within Entourage?
No. You can organize then with categories. Under File --> Export you can
select to export as Entourage archive. This gives you the option to export
by category.
Each contact can have multiple categories. Using categories with rules is
much better than using individual email addresses. When you update a
contact, if you use a category in the rule, there is no change to the rule.
If you use an address, each rule would need to be updated to reflect the
change or addition.