Steve Ballmer emphasized on Wednesday that talks of Microsoft buying Yahoo! are “finished” after speculation started bubbling up again following Yang’s resignation from Yahoo!. But the software giant also lured an executive away from the struggling search company. Meanwhile, Microsoft may sell bonds for the first time ever.

Silverlight suffered a blow on Monday when MLB said it would move back to Flash, according to Adobe. That could be especially damaging, since Microsoft’s case for the rich internet application (RIA) framework relies heavily on its video capabilities and adoption by major players like NBC.

Speaking of the Web, you won’t be browsing it on a final version of Internet Explorer 8 this year, after all. Microsoft announced via blog that IE 8′s release date is now early 2009. Before that, we can expect another beta release in Q1.

Webxchange, an online transaction service provider, sued Allstate, Dell and FedEx for patent infringement. But Microsoft petitioned to have the suit dismissed, claiming that the features — built in Visual Studio — were based on pre-existing technologies and can’t be patented. The three defendants sought indemnification from Microsoft.

And the future is now! thanks to Robotics Developer Studio 2008, which Microsoft started shipping on Monday.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal,” Ballmer said in a statement.

This deal would have moved Microsoft far deeper into a Web Advertising market in which it has trailed both Google and Yahoo. Viewers suggest it well could have shifted the company’s emphasis away from its successful software businesses.

It is not completely certain that the merger machinations are wholly over – as Ballmer’s comments point primarily to pricing as the obstacle to completing the deal. Both Microsoft and Yahoo in the wake of this clumsy dance of courtship.

Some comment from the blogosphere:

According to Stephen Bainbridge. Big shareholders wanted a deal, “but not one that required Microsoft to overpay. In addition, press reports suggest that some of Microsoft’s largest shareholders were pressuring the firm not to overpay.”

Andrew Brust says it’s not over ‘til it’s over. “Microsoft’s withdrawal of its Yahoo acquisition proposal may just be a negotiating tactic.  Or it could in earnest.  Time will tell.”

And, the crack blogger MiniMicrosoft chimes in as well. “With this strategic inflection point, the era of post-BillG Microsoft 2.0 has begun.”

Now the questions.

Who will the Microsoft Cloud effect? Seems like consumers are the target. It appears for now a way to connect one’s different electronic files and such. It may sneak into the enterprise, of course, just like Lotus 1-2-3 did.

Will it work? The answer there is yes, it will work about as well as most software; meaning, it will work much of the time, but you will come to curse it on occasion. Does IT have higher standards than individuals do on the question ‘does it work?’ – well, that is an open question.

Who is the competition? Basically, it is the nemesis called Google. Google has its own Cloud computing solution a’brewing, and Microsoft will have to meet the Valley Search Wizards of Googledom on that plain of battle because…well, because that’s what they are supposed to do. This is not mano on mano, no. It is geek-o on geek-o.

Of course, a wild card in the Cloud race is Yahoo. As you may recall, Microsoft is courting Yahoo with all the ardor of a CPA romancing a distant society deb. It is hard to guess how that will play out, but there is much about Yahoo that Microsoft will have to come to grips with. Yahoo has its own Cloud computing initiative – it has a lot of computers sitting around down on the farm, you know – which, like a lot of things at Yahoo, does not exactly work the same way as the Microsoft cloud alternative. As Blogster Par Excellance Mary Jo Foley points out, meshing these two platforms could be a real mess. Well put, Foley!

• Microsoft has hired a law firm that specializes in proxy fights, which would in all likelihood see it try to oust the existing Yahoo Board of Directors and replace it with a board more sympathetic to its original offer of $31 a share. Hiring a firm for a proxy fight is seen as a much cheaper offer than upping the original offer for Yahoo. (BBC News)
• Both Chairman Bill Gates and Senior Vice President Yusuf Mehdi have affirmed their support for Microsoft’s bid for Yahoo. Gates added that the company will focus its efforts on search even if the Yahoo bid doesn’t go through. (Reuters via InternetNews.com and CNET News.com)
• It turns out that many Yahoo shareholders also own Microsoft shares. This means they support they deal no matter what happens. (The Register)
• Yahoo’s board appears to be divided, with some members worried that CEO Jerry Yang’s vehement opposition to a Microsoft takeover is clouding his judgment of what might me best for the company. At the same time, the board appears to have cooled on partnering with News Corp. (NewsFactor Network) 
• Finally, Yahoo has drafted compensation packages for employees who happen to lose their jobs up to two years after the company undergoes a change of ownership. (CNET News.com)

Now back to your regularly scheduled programming.

• Initially rumored to be purchasing Yahoo outright, New Corp. is now said to be seeking a partnership with Yahoo. News Corp. would get a 20% stake in Yahoo, and the latter would in exchange get the former’s Web properties, which include the lucrative MySpace, as well as some private equity. (The Register)
• Henry Blodget thinks the News Corp. proposal is bringing the advantage back to Microsoft. Why? Yahoo’s getting desperate, and its alternatives aren’t terribly attractive either. Of course, Blodget surmises, Microsoft could just say the heck with it and try to buy Faceook… (Silicon Alley Insider)
• It doesn’t help that Yahoo made good on its promise to lay off 1,000 employees — well, more like 1,100. As both Mary Jo Foley and Dare Obasanjo point out, these layoffs weren’t exactly redundancies — there were some pretty talented people in the bunch. Both wonder if this means Yahoo is trying to make itself look less attractive to Microsoft. Nonetheless, there remains plenty of talent at Yahoo, talent that Microsoft would be daft to dispose of. (CNET News.com for both)

On that note, happy Valentine’s Day.

Here are the story lines that have emerged since Yahoo made its announcement Monday morning.

• Ina Fried remains on top of this story. Her latest chapter examines Microsoft’s acquisition history, from WebTV and Hotmail in the late 90s to this year’s FAST purchase. There are two key differences between those acquisitions and the Yahoo bid — those companies were much smaller than Yahoo, and they offered services that did not overlap with what Microsoft already did.
• Yahoo investor Legg Mason wants Microsoft to raise its offer, simultaneously suggesting that Microsoft’s initial bit undervalues Yahoo and that Yahoo has few options left. (Reuters via InternetNews.com)
• Perhaps embracing the “anything you can do, I can do better” mantra, Yahoo expanded its mobile services and inked a deal with T-Mobile. Recall that, earlier this week, Microsoft expanded its mobile development platform and bought Danger Inc., maker of the Sidekick mobile phone. (InternetNews.com)
• Speaking at the Office Systems Developers Conference, Bill Gates said Yahoo gives Microsoft scale so it can take on Google. Raise your hand if that surprises you. Anyone? (ENT News)

We’ll let you know if anything else happens.

The 411 is available on SearchWinDevelopment.com: Yahoo rejects Microsoft bid, may talk to AOL instead. We’ll keep you posted.

• IDC thinks the Microsoft-Yahoo deal could work, since the “audience reach” for the combined entity could rival Google’s reach. Microsoft’s recent acquisition of FAST, a Norwegian enterprise search firm, sweetens the deal, the report’s 14 authors indicate. (InternetNews.com)
• John Dvorak has analyzed the product offerings of Google vs. Microsoft-Yahoo and doesn’t see a whole lot of benefit for the latter. Google owns, literally or figuratively, video, email and groups, after all. Tim Bajarin, on the other hand, thinks a cloud operating system is the key to a Microsoft-Yahoo partnership, especially since so much attention, regulatory and otherwise, has focused on search, search, search. (PC Magazine for both)
• Since proposing the deal, Microsoft’s market value has dropped close to $40 billion. Long story short, this means Microsoft may have to pay more for Yahoo — perhaps as much as $35 a share, or $4 a share that Microsoft originally proposed. (CNET News.com and NewsFactor Network, respectively)
• A well-performing Japanese mobile carrier named Softbank is chatting with Yahoo about its options. Softbank owns 3.9% of Yahoo and about 40% of Yahoo Japan. (NewsFactor Network)
• The first US Congressional hearing on Microsoft’s bid for Yahoo has been postponed, thanks to scheduling conflicts. No new date for the House of Representatives Judiciary Committee’s antitrust task force hearing has been announced. Two other hearings, one in the House and one in the Senate, are on tap as well. (CNET News.com)

That’s it for now.

As it stands, here’s an update on the most interesting stories we have seen in the last few days.

• Fans of Flickr, which Yahoo owns, want no part of Microsoft and have formed a group, 1,800 members and counting, which is voicing its opposition to the proposed purchase. (CNET News.com)
• Contrary to previous reports, News Corp. is not interested in Yahoo. Nor, for that matter, are Comcast or NBC Universal. It seems that Microsoft is the only true Yahoo suitor after all. (The Register)
• Zimbra is an open-source, Java-based email platform that Yahoo bought not too long ago. One has to wonder, then, if Microsoft would have any use for Zimbra and whether we’d see a Flickr-style uprising. (NewsFactor Network)

Since we have a feeling this whole brouhaha isn’t going away, we have added a new blog category called “The Microsoft-Yahoo saga.” We expect that we will be filling it with blog entries like this — that is, short recaps of what we’ve seen and heard — until something big happens.

Finally, it oughta go without saying, but feel free to add your $0.02 here. We know you have an opinion; why not share it?

As Dare Obasanjo put it: “WOW. Just…wow.” Meanwhile, Reuters reminds us that this would be the biggest Internet deal since the AOL-Time Warner merger — which, if you recall, didn’t quite go so well.

SearchWinDevelopment.com has all the details in its story, Microsoft offers to buy Yahoo for $44.6 billion. Stay tuned for details.

UPDATED Feb. 4 — We’ve added a story that tries to make sense of everything that has developed since Friday morning. It’s called Assessing Microsoft’s bid for Yahoo, and we hope it is more helpful than confusing.