A military Hercules aircraft, operating under visual flight rules, was conducting an airdrop exercise at low level onto Tumbarumba airfield. Due to a delay in the airdrop, the aircraft was holding in a right orbit east of the airfield at an altitude of 1,000ft above ground level. A Piper Chieftain aircraft, on an instrument flight rules charter flight, was on descent to Tumbarumba. The pilot of the Chieftain made transmissions on the area frequency at the top of descent and on arrival in the circuit area but heard no replies from other aircraft. While flying on downwind for a left circuit to runway 19, the Chieftain pilot, and his passengers, observed the Hercules aircraft on their right side on a parallel track and at about the same altitude. When the Chieftain pilot specifically addressed a radio transmission to the Hercules aircraft in the Tumbarumba area, the Hercules crew replied that they had visual contact with the Chieftain and would remain clear. The Chieftain completed its landing on runway 19 and the Hercules departed the Tumbarumba area at low level. The operator of the Hercules reported that the crew had received the broadcasts from the Chieftain pilot but had replied on the wrong frequency due to the incorrect positioning of the copilot's radio transmit selector. After receiving the call directed at their aircraft type, the crew discovered their error and transmitted on the correct frequency. The minimum distance between the two aircraft could not be established. The minimum separation reported by the Chieftain pilot varied from that reported by the crew of the other aircraft. Radar data was unable to reconcile the discrepancy as the Tumbarumba circuit area is shielded from all nearby radar heads by undulating terrain. However, neither pilot believed that a collision risk existed. Although the Hercules crew transmitted on the wrong frequency, they were monitoring the correct frequency and were aware of the Chieftain. They maintained visual separation with the other aircraft throughout the occurrence.