There have been a ton of questions lately about the correct way to enable incoming e-mail - I will try to answer those here as concisely as possible. In a nutshell, you must configure the web front end by installing the SMTP service, create an OU in Active Directory and delegate permissions, and configure the service in Central Administration.
1. Install and configure the SMTP service on the web front end. You must allow mail relaying in IIS if accepting email from another SMTP server, such as Sendmail or Exchange.
2. Create an OU in Active Directory and and delegate permissions to the farm account (should be the application pool identity for Central Administration).
3. There are two possible settings when enabling sites to receive e-mail - Automatic, which sould be used for most installations and Advanced, which is used when using another server for SMTP or a 3rd party e-mail server. When using Automatic, you will not have to specify an e-mail drop folder. (Note: the SPTimer service looks in the e-mail drop folder every 30 seconds for incoming e-mail).You must configure the Directory Mangement Service, which will be available to WSS and MOSS in RTM. If you do not configure the DMS, users will not see the mail enabled document libraries and lists in their Global Address List (GAL). Next, enter the entire name for the OU (i.e. OU=SharePointOU, DC=Contoso, DC=msft), enter the remaining selections and you should be working.
Disaster Recovery NOTE: If you lose this server due to any reason, all incoming email will stop immediately. You must not remove this server from the farm, must not rename this server, and you must bring this server back online as quickly as possible to return incoming email to service.
-ben