I'd like to know how to properly setup adding a single domain user in AD to have the ability to send as a public folder that is mail-enabled to see if we've missed anything in trying to set this up. Running exchange 07 on sbs 08 and using outlook 2010.

This Technet article explains the command required. http://technet.microsoft.com/en-us/library/bb676518(EXCHG.80).aspx You will probably have to ensure the public folder isn't hidden from the GAL so it can be selected in the from field. Also note that permissions are cached, so it might take a couple of hours before it is effective. Simon.Simon Butler, Exchange MVP Blog | Exchange Resources

Removing the public folders and setting them back up fixed this issue for me.