The never-ending talks centering around Microsoft and Yahoo have continued, with both web giants recently dismissing new rumors that the companies are discussing some sort of partnership or have Yahoo's Search business sold to Redmond. Recent news articles from the Wall Street Journal and NY Times indicated that Microsoft was already agreeing to a deal, but neither company has made any announcements pertaining to this. Considering how open both companies have been the past year with their intentions, a behind-closed-doors deal would seem unlikely at this point, especially with Yahoo under fire for their sudden drop in value after initial talks with both Microsoft and Google went south.
Much of the current rumors are spun from recent statements by Steve Ballmer, who mentioned not long ago that he would still be interested in a deal with Yahoo not that such a deal was actually formulating. The suffering stock of Yahoo has led to a lot of internal turmoil, but apparently it's still not yet enough for the company to bail. Let's not forget Yahoo is still a profitable business.
Even if Yahoo did choose to find some form of exit out of the search business, they still have numerous other services at their disposal. Yahoo may be suffering, but they certainly aren't out of options.