This came as a complete surprise to me. Maybe Yahoo! was bargaining too hard and Microsoft finally had enough of it, especially after the recently sweetened offer proved insufficient to satiate Yahoo's ask.
I hope Yahoo! knows what it's doing and doesn't blow things up. Recent indications are symptomatic of Yahoo! being totally clueless about the course it's supposed to trudge. I feel giving up Panama in favor of Google's AdSense would conclusively prove that Yahoo! doesn't have enough faith in its home-grown technologies. Merging with AOL would be disastrous, as Time Warner learnt the hard way.
I pray for Yahoo! and hope Microsoft doesn't return anytime soon with a diminished offer and an I-told-you-so look on its face. Worse, I hope Yahoo! doesn't need to meekly knock on Microsoft's doors. How insulting that would be!