I had the same problem, indicating that the SMPT server needed a password. This is new on OS 3 on the iPhone. Although I could still retrieve emails, when I checked the iPhone outbox, there was a message that hadn't been sent. If you go to the iPhone email settings, select the account and then scroll down to the Outgoing Mail Server settings, click on the SMPT settings, then on the primary SMPT server, you will see that there is a field for password, that most likely is not set. Just click on the password field and enter your SMPT password and this should solve your problem. It worked for me.