Setting up domain for web only, email on another server?

We have a client that wants to use us only for the web hosting and keep the email for their domain with their current hosting.

Where/who do we set this up to properly handle the DNS and related settings?

You/he can add the domain in his account and disable Mail service.
Next add custom MX records as per below guide:
http://www.psoft.net/HSdocumentation/user/editing_dns.html#adding

So we would have him use our nameservers for his DNS settings correct?

Yes, or you can do just opposite. Keep using current NS and just cerate an A record pointing to the IP you see for this domain in the control panel here.