I think its a masterful move by Google! What better way to hurt your competition than to keep a deal from happening (by giving yahoo hope) then dropping out last minute and letting everyone drown with no hope. Obviously the less competition Google has the better and if Yahoo goes under Google will just absorb their share of the crowd.
IF and I mean IF Microsoft considers buying Yahoo it will most likely be just the search engine. Once that is done the rest of Yahoo will either be broken up to other companies or just fade away.
Hopefully Microsoft is smart enough to include the Yahoo name in the whole purchase deal.
Just my two cents