Ok, after jacking with this for an hour I finally figured out what I did wrong. It's both a user error (me being in a hurry) and a bug in the software that results in this rather frustrating exercise.
When you enter your user name, be sure that between your domain and your user name that you use a \ and not a /. In the iPhone keyboard menu the / appears when you click the "@123" button but the \ does not - not until you hit the submenu button that takes you to additional numeric/character keys where you'll find the \.
That's the user error part.
Now, if you do make this mistake the iPhone will accept it and it will validate with Exchange. It will ask you for your Exchange password then it will ask you for a passcode. Once it asks you for the passcode, that screen will immediately crash (close) and you'll get an error message saying your password is invalid. Depending on your companies security policies, it will lock your account out immediately and will require IT to unlock it.
If the application were properly coded, it would tell you that your user name was invalid and prompt you to reenter it.
So, if you have this problem - that's why.
Keep in mind that if you use Yahoo, Google or iCal calendars, once you activate Exchange you will wipe all of them out.