Hi stl99, I have done testing in regards to your issue.
I am running the latest WordPress version 3.5.1 and the latest plugin version 2.0.3.
Here are the results. I added a comment and subscribed with my yahoo e-mail account.
I receive a notification to my yahoo e-mail account. The administrator for my website also receives a notice of a new subscriber.
The e-mail that yahoo receives says to confirm by clicking on the following link. However the link is not click able so you have to copy and paste into the browser. It’s not much of a problem if this is the correct behavior of this plugin. And yes I did have the following settings selected under Settings >> Subscribe to Comments >> Options >> Enable HTML emails to Yes
My test did provide a positive result.