I too am still having this problem. Other posters have mentioned that you need to sign onto the webmail interface for your free Yahoo email account, and complete the captcha entry when sending the email, which should somehow allow the account to recognize your iphone. #1 this hasn't worked for me (never ever been presented with the captcha online), and #2 it doesn't make any sense how this would be related (the IP address of your computer and your iphone are going to be different, and in many cases not even in the same IP block, so I just can't see any correlation in this supposed fix).
Sometimes I can send email using the default-setup Yahoo free email account on the iphone, sometimes I can't (the emails just disappear after the whoosh - they never arrive and never show up in Sent mail). I can't seem to duplicate whatever it is that I have done when it mysteriously starts working again.
I thought it might have something to do with SMTP servers needing authentication before sending, some old email client software could be configured to POP before SMTP in order to authenticate that IP address being OK to send email for a set period of time. That doesn't seem to be it in this case... I can receive valid mail from other sources than myself on the iPhone, yet trying to do an immediate forward or fresh send right after that still ends up in a vanishing email after the whoosh.
If I could reproduce the exact duration or circumstance that you have to hit between when it is working to when it isn't, then this could easily be reported to Apple/Yahoo. As it is, I think Yahoo is taking the approach that it's all our fault with settings, we must be doing something wrong, reset your iPhone, restore your iPhone, etc. etc.
It's absolutely a bug in Yahoo's handling of mail sessions with the phone - but it's going to take someone smarter than I with very specific technical details before we can get someone's attention. Perhaps I am going to have to find and install a suitable packet sniffer so I can watch the traffic between the phone and Yahoo over wifi - and see if the phone isn't doing something it should.
As it is, Yahoo email is for the time being completely useless on the phone in the default mode, because you can never be sure an email has gone out. I may have to resort to my .mac account since IMAP is working perfectly for me there (but .mac desperately needs upgrades of its own, that's a whole other thread).