Wow. I just did a search on Yahoo Answers and not only did none of the answers give a step by step instruction for setting it up but all the answers were pretty much wrong.
When you setup your Yahoo account did you go to Settings->Mail, Contacts, Calendars->Add Account...?
Once there I think you just click on the Yahoo!Mail button (don't use other), put in your name, Email Address and Password and it should work. I don't have service at my desk here at work so I can't conveniently try it. The only other tip I can offer if you did that would be to delete the account from the iPhone and try again.
One problem I had when I was setting up a new Yahoo account recently is it did not like my password. I think this is an iPhone problem because I have seen it other places on the iPhone too (like AIM). The iPhone doesn't seem to like the character "&" in the password. That won't be your problem if you can "pull" your Yahoo!Mail. Can you do that?
I just read your original post and saw that you pay extra for the POP access. That might be your problem. I saw a question someone posted about the paid accounts not working as well as the free ones for the iPhone push feature. I don't know if that has been resolved.