Microsoft Corp. (NASDAQ: MSFT) has long been rumored to be looking at a purchase of Yahoo! Inc. (NASDAQ: YHOO). The rumors of a Microsoft-Yahoo combination have had an on again/off again status for years, and renewed chatter seemed to crop up every time Yahoo! was in the market's doghouse or when competitor Google, Inc. (NASDAQ: GOOG) reported a solid quarter. Since Google has nearly always reported solid quarters in its entire history as a publicly-traded company, Microsoft-Yahoo chatter has been bandied in the press quite regularly.

Would Microsoft really use billions of its cash and take on debt to buy a company that basically replicates much of what it already does in terms of online product offerings? That would be a stupid financial mistake. If Microsoft wanted to buy Yahoo! simply to combine the internet search offerings of both companies in an effort to try and make a killing off internet advertising as Google currently does, that makes sense. However, the payoff would take quite a while and Google's market-leading internet search market share shows no signs of ceding anything to the competition.

Former Wall Street guru Henry Blodget recently went down the rode of plausibility on a combined Microsoft-Yahoo that brings up some good points and some interesting cautionary notes on why a combined Micro-hoo (ha!) would be disastrous for Yahoo!. In a nutshell, Blodget says that Microsoft would never allow a combined Micro-hoo to challenge the Windows and Office franchises that currently supply almost all of Microsoft's revenue base.

His argument, though, is that such a stance is precisely what would be needed to fend of Google's march into the online productivity world with its Docs & Spreadsheets offering as well as Google being "hell bent" on destroying Microsoft's Windows and Office monopolies. It's interesting that Blodget does not even mention Google's cash cow (online advertising), or what Micro-hoo could do to compete better in that arena.

As Melly Alazraki mentioned in her post last night, everyone is mourning, alas poor Yahoo!: the real loser in the Google-YouTube deal. And the best defense is a good offense, right? So naturally the lips of investment bankers are wet with the licking. I can just see (in my imagination silly! I don't have spies) the acquisition pitchbooks being pitched left and right all over Terry Semel's desk.

Is Yahoo! Inc. (NASDAQ:YHOO) buying? And if the company is keeping its fax machines busy with term sheets, who might it buy?

Yahoo!'s never been afraid of a good little acquisition. Hello, Flickr, hello, Facebook.com? Interested parties have mentioned names like Dabble (a sort of online TV Guide, and no, I never heard of it either), Heavy.com (whose co-CEO says that, although he's not selling, he'd of course consider a deal with "a good exit strategy," haha) and our own Tom Taulli's favorite, vMix, whose CEO spoke not a word of acquisition talk in his interview with us.

But Melly makes an excellent point: shouldn't Yahoo! finish Project Panama first? How the heck could the company even monetize an acquisition right now? Maybe eBay should be the one out there buying. Yeah!

I can just hear the investment bankers scurrying back to their PowerPoint files now and doing replace-all for "synergies with" from "Flickr" to "Skype" ...