As long as the bounces are delivered to an email account you can check via POP3 or IMAP, the bounce handler can read it. That error indicates there's an issue reading from your POP3 server though (that might imply there are issues with the details you entered for it or that there are network/connection issues to it).
Changed it to imap and used the imap settings now. So I'll see if this works perhaps.
I'm actually using gmail web apps for business now with my own domain as an email address for the bounce email addy. So I guess it's nothing to do with Amazon AWS which I'm using for the actual forum emails (thread notifications, new member registration conformation emails, and mass emails etc)....?