You can configure Hotmail to work on the iPhone. It works very well, I have had no problems with it. After upgrading to a Hotmail plus account, follow the instructions-
http://mailcall.spaces.live.com/Blog/cns!CC9301187A51FE33!44348.entry
Account: On
Account Information:
Name: John Smith (note: enter your own name)
Address: example@hotmail.com (note: enter your full Hotmail email address)
Description: Hotmail
Incoming Mail Server:
Host Name: pop3.live.com
User Name: example@hotmail.com (note: enter your full Hotmail email address)
Password: password (note: enter your Hotmail password)
Outgoing Mail Server (SMTP):
Host Name: smtp.live.com
User Name: example@hotmail.com (note: enter your full Hotmail email address)
Password: password (note: enter your Hotmail password)
Advanced Settings:
Incoming Uses SSL: On
Outgoing Uses SSL: On
Authentication: Password
Delete from Server: When removed from Inbox (or your preferred option)
I paid the $20 for the Hotmail plus account and was receiving mail on my Iphone within a half hour. It Rocks.