[UPDATE: You do NOT need a Paid Yahoo Plus account for this to work... the example below is done with a FREE Yahoo Mail account:]

[UPDATE July 1, 2010: Yahoo has released their own Mail app for the Android marketplace: http://ymobileblog.com/blog/2010/06/30/yahoo-brings-its-world-class-communica...]

To set up Yahoo E-Mail on the Motorola Droid:

1. Make sure Wi-Fi is turned off
2. Press the E-Mail icon (the default Android E-Mail application)
3. Enter your Yahoo E-Mail address and password
4. Press “Manual Setup” in the lower left hand corner
5. For “Incoming Server Settings” set the IMAP server to “imap.mail.yahoo.com” and the Port to 143
6. For “Outgoing Server Settings” set the SMTP Server to “smtp.mobile.mail.yahoo.com” and the Port to 587
7. Check “Require sign-in” and press Next
8. Select how often your Droid will check for Email, and choose default options
9. Give the account a name and set your display name for outgoing messages

Done and done.

The above instructions are for a Motorola Droid (running Android 2.0) but it should work for any Android phone. I tested on a Samsung running Android 1.5 - worked great.