is it possible to create issue from an incoming email based on the subject of the email i.e.
if subject contains "XYZ" then issue of type K should be created but if subject contains "ABC" then issue of type tyle L should be created?
The existing Auto Assign from Subject is one way to codify an association to a project, but the exact solution so to allow keyword matching from the subject. This is being implemented right now, and will be available in 1.3.1 in the next week or so. It will be a further 'mapping rule' available through Project Mappings. For an idea on how Project Mappings work (repalce domains with subject keywords for the parallel) with email domains, see https://javahollic.atlassian.net/wiki/display/JEMH/Use+Project+Mappings
Not natively. Alex has pointed you at the built-in handlers, but they will not map issue types, they use the project default or the type set in the handler config, they don't read the email for a type.
The advanced email handler, JEMH does support this. Or you could write your own handler (if you're going to try anything clever with email, seriously consider JEMH)
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