New iphone, synced with Outlook, but messages remain 'unread'.

I just moved to a new iphone 3gs and even though I didn't' change anything on my computer my iphone email remains marked 'unread' with the little blue dot and notification numbers.
I see people have this problem a lot, but previously when I opened outlook and just downloaded email the blue dots would disappear on the iphone. I could almost see it happen live if I updated the iphone email. I didn't even have to read the email on my computer, it just automatically recognized it was downloaded by outlook and therefore removed the blue dot and notification.
I should note that in my outlook settings I have never had it set to remove email from server right away (I have always left my email on the server for a week to get email on the road and as a backup for HD failure).
So for whatever reason when I set up the new iphone email (had to do it manually) this time it does not know I've downloaded the email to Outlook and does not automatically take the blue dot away. I'm not sure how it did it before but I would like to have it working again.
Any thoughts?

My iPhone email works with my Gmail account.
Since going to OS 3.0, I've found that the unread indicator on the mail icon is wrong if I delete new messages without reading them first.
I now seem to be stuck with 1 inbox mail unread despite all my inbox mails being read (and there's only 7 of them, not easy to miss).

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