Are you rooted? I'm running a 2.1 ROM and yahoo mail is one of the things they fixed in these later ROMS. In any case, here's the settings I have for outgoing mail, give them a try, see if it works for you:
server: android.smtp.mail.yahoo.com
port: 465
security type: SSL
Check Mark in the "require sign-in" box
user name: whatever is before the @yahoo.com part of your email address
password: pretty self explanatory
I'm curious what you're running and if this worked for you so please let me know. Thanks!