Lion Mail 5.0 rejects a POP server. Looking for confirmation and/or workarounds
A bug has been filed as this appears to be a software issue.

Radar #9813866 
The issue in this case seems to be that the Mail app takes a stricter view of the CAPA response which older POP deployments may not match. The server isn't reporting the USER command as available, even though it is a basic command.