My setup is as follows: MOSS 2007 & Exchange 2003 (Domain: MOSS07.co.uk)
Most of the documentation I found talks about setting this function up in a lab environment with simple email functionality and it took me a while to piece it all together and get it working with Exchange 2003.
I followed most of the settings found in this excellent article How to configure Email Enabled Lists in Moss2007 RTM using Exchange 2007 . I could not get it to work using the automatic configuration (see step 3), so had to go down the manual route as described in the article.
Under Management Service settings (Step 3B in the article) I put in ‘Active Directory container where new distribution groups and contacts will be created’ settings OU=Sharepointdl,DC=MOSS07,DC=co,DC=uk and Servermoss07.moss07.co.uk in the ‘SMTP mail server for incoming mail settings’.
The thing I had to change was getting Exchange to forward emails destined for email@Servermoss07.moss07.co.uk to the MOSS server (Servermoss07) – it does state this in the troubleshooting section of the article. I did this by creating a new SMTP connector and putting the server name (Servermoss07.moss07.co.uk) in the ‘Address Space’ tab. Once I had created this mail started being delivered into the drop folder on the MOSS server.

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