Solved a number of problems, although perhaps non-conventionally.
First things first, /etc/mail/local-host-names _has to_ contain the domain(s)/host(s) for which you are receiving mail.
Next, although not entirely necessary, sendmail complains a lot less and starts up faster if your hostname is set. You can set it manually with "hostname your.hostname.here.com", or perhaps in /etc/hostconfig under the "HOSTNAME=" line. I haven't rebooted yet to verify this, but from the /System/Library/Startup/Network script seems to verify this. It'll sleep and retry if you don't, but eventually it'll startup for queing.
After a few frustrating hours trying to figure out why "mail.local" didn't have the correct permissions to write to /var/mail, I got it to work by making it setuid root (ie: chmod u+s /usr/sbin/mail.local). Now, this probably isn't the greatest idea, but it did deliver mail. I recompiled the latest sendmail (8.11.3) just to be sure that it wasn't an Apple problem, and the same thing is required for that build. It talks about some different compile options for SYS V based Unixes, but BSD is not, so I would think they don't apply.
A more desirable solution for me was to compile and install procmail (www.procmail.org) and enable it as the local mail delivery agent in the sendmail.cf file. For my installation, the following config options in the .m4 file did the trick:
define(`PROCMAIL_MAILER_PATH', `/usr/bin/procmail')
FEATURE(local_procmail)
Or, alternatively, you can edit the Mlocal file in /etc/mail/sendmail.cf similar to the following:
Mlocal, P=/usr/bin/procmail, F=lsDFMAw5:/|@qSPfhn9, S=EnvFromL/HdrFromL, R=EnvToL/HdrToL,
A=procmail -Y -a $h -d $u
Hope this saves some time for some people.