I am in about square 2 in using Sharepoint to create our company's
IntraNet. We have about 110 users in our organization. I am going to
create an issues list on the IT (Information Technology) sub-site. In
order to give everyone in the company access to this issues list, with
the appropriate permissions, I will find myself, ONCE AGAIN, entering
the user names by hand. That is so tedious and I cannot find a way to
create groups in Sharepoint. How do organizations with several
hundreds or even thousands of users do this!?!?!?!

As far as I know, Sharepoint does not, in any way, shape or form
interact with AD. My Sharepoint site sends E-Mail flawlessly, but I am
having trouble with using an Outlook address book (in this case, being
able to use the Global Address Book would be WONDERFUL. I get a
message that is saying it cannot contact the Exchange server. I have
trouble believing that I don't have that whole thing set up correctly
since I am sending/receiving alerts via E-Mail.

I think I have actually presented TWO problems that I need assistance
with.

First… people deal with massive numbers of users with AD groups. Just as you’re adding individual users, you can add AD groups. Much easier to manage permissions this way.

Second, SharePoint ~does~ work with AD. SharePoint relies upon AD to provide the authentication (you are who you say you are) where SharePoint provides the authentication (you have access to X, Y, and Z). It sounds like you’ve setup your farm correctly to work with Exchange. When you’re opening the GAB to add users on your local machine, the connection to Exchange is coming from your machine. Has your machine been added to AD? Do you connect to Exchange from your machine (via Outlook)? Sorry, no answer here… more questions to help with your issue.

SharePoint interacts with AD – that’s where the authorized user list comes from.

you can configure any SMTP server to send mail. check the central admin pages.

as for the access the the GAL, why not just create groups of users in ad and
type that group? i would be guessing but it seems that outlook wont add the
users via address book as people usually dont have fields for "account name"? or
perhaps your AD does not have the field filled in for email address?

see, us companies with 2000 users and sharepoint  also use exchange  i think..
they are pretty hand in hand. once you get bit by exchange, WSS is soon to
follow, then portal, then LCS :)