John C. Dvorak says:

Long before Google became the nexus of computerdom, this notion of Microsoft joining forces with Yahoo had come and gone numerous times but was always rejected when anyone objectively looked at all the inherent redundancies. This means that joining two companies like this would not be a 5+5=10 scenario but a 5+5=6 scenario. With all the problems mergers have anyway, it might even be a 5+5=4 situation when all is said and done.

I think that was realized long ago and the idea was never discussed again until recently. The new reason to rethink this idiotic notion is because of the bogeyman Google. Run kids! Run for your lives! The big bad Google is coming to kill you and eat your liver. Run!
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Let’s face one thing. Both Yahoo and Microsoft are stodgy and borderline hopeless bureaucracies. Neither company is structured to compete with a wild unstructured company like Google, where they chose a CEO because he went to Burning Man.
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In fact, it is preoccupation itself that is hurting both Yahoo and Microsoft. Sitting around being worried sick about Google accomplishes nothing. If Ulanoff wants to dole out some advice to these companies he should be telling them to ignore Google and just focus on what they can do to substantially improve their offerings. This means looking beyond Google.
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This is what Google did: a better search engine. A better this and a better that is the key. People tend to gravitate towards better. Yahoo and Microsoft have to make a better product. Combining forces would probably have the opposite result. It always does.

My own note. Leo Laporte has claimed that Yahoo Mail is now better than Gmail, but I disagree. I want something lightweight, fast, and powerful, and Gmail is the only service right now that fits the bill.