I'm trying to figure out how best to setup my yahoo mail account as well.
I'm currently using "better email" since it has a desktop widget that shows me the number of unread messages in my yahoo inbox (I couldn't find anything decent that would do this with the stock email app).
I see yahoo also has an email app in the marketplace... I haven't tried that yet.
Yes you can use the email app. Hit menu, add account. Put in your yahoo information. Then at the bottom left tap manual. On the next page tap imap. On the top line make sure your full email address is typed in. Then where it says imap server type "imap.mail.yahoo.com", then next page under smtp server type "smtp.mail.yahoo.com" then finish.
I usually don't like these apps as I try to use what is already on the phone and keep installations to minimum because of lack of available space. I've been running native email app connecting to yahoo imap and its been working pretty stable for past 2 days.