OK, I got it fixed. The phone setup was not the problem. Apple's lack of error message support was in my way. On a windows mobile device there would have been an error HTTP_500 coming up to direct me to my problem, but on the iPhone iPod this error does not appear, the device simply is missing data.
Here is the fix:
http://support.microsoft.com/?kbid=817379
It's an SSL issue on the server. We had everything forced to use SSL and with activesync you cannot use SSL for the activesync part. The fix involves making a second virtual directory that is non-ssl and locking it down to just activesync operations internally to the server.
Everything is sync'ing now nicely!
I hope others may find this information helpful because since the 2.0 firmware is so new I haven't found a single bit of troubleshooting info out there.