Microsoft and Yahoo finally announced that they do in fact have a deal. There’s no merging, but a 10 year search and technology deal. It remains to be seen how this will affect consumers and whether or not regulators will approve the deal, but it looks like Bing will end up being the winner.
Microsoft and Yahoo have a joint website up with more info and there’s more info at Paul Thurrott’s and Mary-Jo Foley’s blogs.