Sounds like they have a programming Gremlin that they will have to fix with a update, hope that they can do this soon for you but glad to hear Handcent seems to be helping..
Just a follow up to anyone following this issue. Android Developers are looking into it and it sounds like they are thinking it has something to do with how they are formatting their SMTP request and it appears to be seen when the recipient is using a web email system (Hotmail, Yahoo, GMail).
If you check the bottom of the thread at the link I posted a few messages above, you'll see that the Android developers have figured out what's wrong and fixed it. They said something about it being a "framework issue". Unfortunately, the email.apk isn't available as a standalone download and is only included with the full OS, so there's no time frame for the release of this fix.
Until then, I'm finding that K9 Mail is doing a great job for me.
I am having the same problem with my DRIOD4. I use the regular email client. Just sent an email to a friend at work and he responded via Outlook and the apostrophe is now ' and I know I typed the real ' when I sent it. I did a search for the issue and it brought me here. Looks like I'm not the only one with the issue. I will check back for solution.
I called Verizon months ago (likely in November) and the person on the phone said it was a known problem and should be corrected when the next software update came out. She said the update would likely be out in January. It is now late February and I still have the problem. It's pretty bad - or maybe I should say, "It&aposs pretty bad."