Using the method you described, you will need to let the water cool back down to 100 degrees or less before adding the yeast, as a higher temp will probably kill (or damage) the yeast.
 
Some say to hydrate the yeast using the method you described is a good thing, but I think (from experience) that sprinkling the dry yeast on top of the wort (unfermented beer) that is aerated well (infused with a fair amount of oxygen) works just as well.

put your wort in a bucket, close the lid, and rock the hell out of it for a couple mins should do the trick.

[quote author=Rogue Vassar link=1263870647/0#4 date=1263930314]Quote from jjhunter on 01/18/10 at 10:52pm:

 
if you just rehydrate it in water, it won't bubble as there is no food for the yeast to consume.  it will just turn the water a tan color.
 
With the quality of dry yeasts that are available now-a-days, there really is no need to rehydrate before adding to the wort unless you feel that the yeast is suspect.  In that case, I would make a small starter (i use a cleaned out Jiff jar with a drilled hole in the top with a rubber gasket and an airlock) with a pint of water and a cup of DME that i have boiled and chilled down to under 80 degrees.  add your yeast and let it sit in a warm place for a couple of days before your brew session.  if you aren't seeing any activity in there, then you should get fresh yeast.

To add to Joe's answer on aeration:
 
Assuming that you are an extract brewer, there are several ways to get O2 into the wort
1.  Just the act of adding an additional 2.5 to 3 gallons of cold water to the boiled wort, that introduces a lot of oxygen.  That's all I did when I was an extract brewer, with good results.
2.  Shake, per Joe's post
3.  Use an aeration stone and aquarium pump (usually needed only when doing a 5 gallon boil (full wort boil)
4.  Use an aeration stone and Oxygen (usually needed only when doing a 5 gallon boil (full wort boil)

I think for the time being i will just go with options 1 and 2.
 
Thanks!