Yahoo and Microsoft are poised to finally sign the definitive agreement that will govern the complex and far-reaching search and online advertising partnership they struck in late July, said sources close to the situation.

If all goes well, the various Microsoft and Yahoo execs–who have been ferreted away over the last weeks, busy dotting all the i’s and crossing all the t’s in the massive document–could even turn in their deal homework to their bosses for signature by the end of the week.

Yahoo (YHOO) officials declined to comment, while Microsoft (MSFT) has not gotten back to BoomTown as yet.

In any case, getting the definitive agreement in place is critical to making the high-profile MicroHoo deal a reality and, of course, getting the anti-Google (GOOG) party started.

So when the pair blew through a deadline to complete it in late October, there were eyebrows raised all over Wall Street and Silicon Valley.

When Yahoo filed an 8-K with the Securities and Exchange Commission in August, it noted that the “Definitive Agreement” between the Silicon Valley Internet company and the Redmond, Wash., software giant needs to be sketched out by Oct. 27, 2009.

But it is a monster document, which is why MicroHoo did not complete it in time. After that whiff, Yahoo said as much in another filing with the SEC:

“The Letter Agreement specified that the parties would execute definitive agreements by October 27, 2009, but given the complex nature of the transaction, there remain some details to be finalized.”

Added Microsoft similarly:

“We have made good progress in finalizing the definitive agreements. Given the complex nature of this transaction there remain some issues that need some additional clarity and definitive details.”

Nonetheless, both companies have consistently said that they would be able to close this deal by early 2010.

Yahoo and Microsoft had already done a pretty hefty binding-agreement letter (here is a picture of Yahoo’s CEO Carol Bartz and Microsoft CEO Steve Ballmer holding it, in fact).

Also key: Getting approval for the deal from regulators in Washington, D.C., which, sources said, also seems to be on track.

With little opposition, Yahoo and Microsoft policy types have been chipping away on regulatory issues with federal regulators in Washington.

And, several sources said, those government approvals are now nearing completion at the Justice Department, even though the Federal Trade Commission might still ask for more assurances on privacy issues related to online advertising and consumer data.

International regulatory approval is another story, especially in Europe, which could further delay the implementation of the partnership, since it is unlikely the pair would move forward without clearance globally.

When that is done, the real game begins, as MicroHoo faces its the much more critical Tim Gunn acid test for the deal:

Making it work.

According to several sources close to the situation, barring any unforeseen delay, a deal to settle the Skype imbroglio is likely to be announced around the time the markets open tomorrow.

[UPDATE: The paperwork is taking longer than expected, so sit tight, said sources.]

While the massive agreement–which will settle three aggressive lawsuits lobbed by Skype co-founders Niklas Zennström and Janus Friis at a wide range of prominent Silicon Valley players–is not yet officially signed, sources said lawyers are apparently putting the finishing touches on the paperwork and have signature papers completed by both sides to be able to wrap it up quickly.

So, while nothing is ever over until it is over, it looks like it is over.

Sources also said that as part of the deal to end the legal madness, Zennström and Friis will get 10 percent of Skype back for rights to key software technology they control, an option to pay $83 million for another three percent of the Internet telephony service and two seats on the 23-member board.

Also, BoomTown has learned that a partridge in a pear tree will be thrown in to guarantee a lasting peace.

All kidding aside, the settlement is proof that squeaky wheels–especially if they hire the combative litigators of Skadden Arps–get the grease.

As has been previously reported, one of the investors in the consortium that won the bidding to buy 65 percent of Skype from eBay (EBAY)–which itself had bought it in 2005 from Zennström and Friis–has withdrawn its investment and involvement as part of the settlement.

That would be London-based Index Ventures, which was a smaller player in the group with–ironically–a three percent stake.

Nonetheless, Index had an outsized fight going on with Zennström and Friis.

That’s due to their ire, aimed at Index’s Mike Volpi, who was CEO of Joost, the failed online video site the pair founded.

After Zennström and Friis lost their own bid to buy back Skype, they quickly sued Index and Volpi via tech companies they control, Joltid and Joost, in Delaware.

The pair alleged that Volpi used confidential information gleaned from his time as Joost CEO to unfairly help the winning consortium acquire Skype.

The lawsuit was particularly vindictive, using embarrassing emails and making pointed accusations about Volpi plotting all kinds of nefarious schemes, like Lady Macbeth on steroids, on his way out of Joost.

I am not sure what law one can break for wanting to leave a job or how much damage one can do to an already failing business, but that did not stop Zennström and Friis from trying to pin some specious accusations on Volpi.

(I wouldn’t have been surprised if they had accused Volpi of being responsible for Balloon Boy.)

But such legal attacks obviously worked, making Index loath to stay in an economically less attractive deal with lessened influence over Skype.

And eBay and the other investors obviously wanted closure, so they could get on with the work of turbocharging Skype.

The fighting between Index and the Skype founders was just one part of the legal morass.

Zennström and Friis had already been in a battle over software licensing issues with eBay in London courts.

They also filed suit again in California against Skype and eBay for copyright violations.

For good measure, the pair added the winning buyout group, including Index, Silver Lake Partners, Andreessen Horowitz and the Canada Pension Plan Investment Board, in that lawsuit.

(In legalese–and in honor of the Yankees winning the World Series tonight–such massive lawsuit-making is called covering all your bases!)

Of course, Volpi and Index fired back in court filings and both sides armed themselves with powerful PR guns.

Presumably, those same mouthpieces–who have been slagging the other side for weeks–will now be at the ready with honeyed tales of reconciliation tomorrow.

Call me cynical, but we’ll see how long that lasts.

“[Zennström and Friis] got what they wanted by using Volpi as a pawn and the lawsuits as a club,” said one person close to the situation. “Everyone is moving on, but not everyone is going to forget what they did to get what they wanted.”

According to sources close to the situation, Index Ventures and Michelangelo Volpi are out of the deal to buy Skype–and their lawsuit-loving nemeses, the founders of the Internet telephony service, are in.

Skype founders Niklas Zennström and Janus Friis had sued Index and partner Michelangelo Volpi via tech companies they control, Joltid and Joost.

The pair had already been in a legal battle over software licensing issues with eBay (EBAY), the company that had sold Skype to in 2005.

They then accused Index and Volpi, employing a reputation-bashing style, of using confidential information as part of a consortium bid to acquire a large chunk of Skype.

Volpi had been Joost’s CEO.

Volpi and Index fired back in court filings and both sides armed themselves with powerful PR guns.

Ironically, Index was only a small part of the group that won the deal to acquire Skype from eBay recently.

News of the serious settlement talks was reported earlier this week by GigaOm’s Om Malik.

The New York Times’s Brad Stone also added significantly to the story about the settlement today, noting the Skype founders would be getting a stake and that Index “is most likely withdrawing from the deal.”

Well, most likely now means certainly for Index, sources told me, and the London-based venture firm that bid for Skype has to bid that deal goodbye.

More details to come, but it’s sure proof that the legal system, such as it was used, works.

In what should come as a shock to almost no one, the detailed negotiations to complete the Microsoft and Yahoo search and online advertising final agreement are more complicated than its authors anticipated and are taking longer than expected to complete.

Relax, folks–they’ll get done.

But here’s a more important thing that should wrap up sooner than later: Yahoo CEO Carol Bartz’s seemingly never-ending gibes about former CEO and co-founder Jerry Yang’s tenure.

First, let’s deal with the issues around the agreement, which is a monster document.

That’s why MicroHoo missed the deadline yesterday to execute its definitive agreement on the transaction struck in July.

In a filing with the U.S. Securities and Exchange Commission, Yahoo (YHOO) said:

“The Letter Agreement specified that the parties would execute definitive agreements by October 27, 2009, but given the complex nature of the transaction, there remain some details to be finalized.”

Added Microsoft (MSFT) in a long statement:

“Microsoft and Yahoo! are committed to this agreement and believe this is a highly competitive deal that is good for consumers, advertisers and publishers. We have made good progress in finalizing the definitive agreements. Given the complex nature of this transaction there remain some issues that need some additional clarity and definitive details. So, the teams at Yahoo! and Microsoft are continuing to work on the remaining details, and we have mutually agreed to extend the period to negotiate and execute the agreement. We plan to do this as expeditiously as possible. Both companies are optimistic that we will be able to close this deal by early 2010.”

Thus, the deadline has been pushed back indefinitely, which is very common in such larger and complicated deals.

Yahoo and Microsoft had already done a pretty hefty binding letter agreement (here is a picture of Yahoo’s Bartz and Microsoft CEO Steve Ballmer holding it, in fact).

Getting approval from regulators is also part of the deal, and it is likely to happen in the U.S. just after the new year.

International regulatory approval is another story, especially in Europe, which could further delay the implementation of the partnership, since it is unlikely the pair would move forward without clearance globally.

But perhaps most of all, what seems more likely to never end and probably should is the proclivity of Yahoo’s Bartz to use sharp-tongued analogies to talk about just how bad Yahoo had been doing and how it is now poised to make a comeback.

In her very first press conference when she got the job, in fact, she noted that Yahoo, “frankly, could use a little management.”

Bartz was right then and even more correct to say it out loud, but she has not stopped the criticism.

And, like clockwork, at an analyst day at Yahoo HQ in Sunnyvale, Calif., today, Bartz trotted out a yet another in a long series of backhanded insults to former CEO Jerry Yang and his crew.

Said Bartz at the event about the Silicon Valley icon:

“We have fallen and we really want to get back up. If you haven’t had good times and bad times, you don’t know what you’re doing. We prefer the good times. We have passion to get back there. Today is the start of that.”

Today is the start? Didn’t Yahoo declare a version of the same theme when the MicroHoo deal was announced in July? And at the the launch of the new homepage in September? And the more recent rollout of its massive marketing campaign?

It seems to me that since she has been there almost a year, much like the Obama administration, Bartz should not be looking backward anymore and keep announcing that it is time to get back on track.

Because she is most definitely in charge now at Yahoo and should be the one to get all praise and all blame from here on out.

So, as someone who has definitely been very tough on Yang while CEO, it’s time to stop knocking him over now, because it is starting to feel like a very cheap shot.

Microsoft’s MSN is in preliminary talks with MySpace about using the social networking site’s music service, MySpace Music, to help power music offerings on the giant portal.

While sources at both companies cautioned that the talks are still early, Microsoft (MSFT)–which has its own music site that it programs with original and partnered content–execs are interested in goosing it.

That’s because MSN Music consistently ranks substantially lower than other big online music properties in terms of traffic, while MySpace Music is always near the top.

Sources said Microsoft execs don’t think they can do as good a job as MySpace is doing and don’t see the point in striking needed but complex deals with music labels, which the News Corp. (NWS) property already has.

In an April report by comScore (SCOR), for example, MySpace Music was No. 2, just behind AOL Music, with 27.4 million unique monthly visitors. MSN Music was No. 6 with just 7.4 million.

Nonetheless, music is an area MSN cannot lag so badly in, given that entertainment is one of the key categories it is focusing on as it preps for a major renovation of the portal.

As BoomTown wrote in mid-July about a wide variety of changes coming to MSN:

MSN, Microsoft’s online portal, is also preparing a major redo of what U.S. and, possibly, international consumers will see, as it doubles down on five key content verticals, while cutting back on others.

In a new focus that will start to be apparent in the next month, MSN will heavily add to its News, Sports, Finance, Lifestyle and Entertainment offerings, weaving more data from [its search service] Bing into the mix.

“It’s a decision to make it so MSN does less better,” said one source close to the situation. “So there will be a focus of attention on a smaller number of categories in which we can be either #1 or #2 in, rather than #4 or #5.”

It is not clear exactly what the financial terms would be in any tie-up between MSN and MySpace, which could include licensing of content and other services related to music.

But such a deal is not unusual–MSN’s sports site is powered by Fox Sports, which is another News Corp. property.

And such a partnership would also key into concepts that MySpace CEO Owen Van Natta outlined in a recent interview onstage at the Web 2.0 conference.

Key among them was boosting music and entertainment overall and making them the prime focus in the site’s efforts at reinvigorating itself, as well as expanding distribution of MySpace.

In fact, MySpace recently bought social music service iLike to expand its distribution all over the Web, for example–including on Facebook, the longtime social networking rival from which MySpace is now trying mightily to differentiate itself.

In his appearance, Van Natta also unveiled a music video hub, the ability by users to buy music using Apple (AAPL) iTunes, and a set of better analytical tools–called MySpace Music Artist Dashboard–to help artists figure out how to best work with fans.

But MySpace needs more than these, and a link with Microsoft would provide it with a traffic gusher, since MSN’s main page remains one of the most trafficked sites on the Web.

If such a distribution partnership were struck, it would also raise the question of what will happen regarding MySpace’s negotiations with Google (GOOG) over renewal of their search deal, which expires next summer.

Dissatisfaction over the pricey three-year deal has been expressed by both sides; their mutual grumbling is one of the biggest open secrets in Silicon Valley.

Doing a search deal with Bing is the obvious and only alternative, although few expect any agreement to be as rich as the one MySpace did with Google in 2006 for $900 million.

Interestingly, it was recently reported that both Google and Facebook were bolstering music search and sales offerings, and Google’s apparently includes the use of the iLike player.

In other words: This could get really complicated.

Execs at both MySpace and Microsoft I reached out to declined to comment.

(Full disclosure: News Corp. owns Dow Jones, which owns this site.)

Carl Icahn, the activist billionaire investor who made such a noisy fuss in his quest to force management and other changes at Yahoo, is taking a much quieter leave from the Internet giant’s board.

He apparently has told the Yahoo (YHOO) board that “there was not a need at this time for an activist investor” and that he has a lot of other companies he invests in to focus on.

That’s true, of course, given a spate of troubled investments that Icahn is dealing with.

But here’s BoomTown’s quickie analysis: Yahoo CEO Carol Bartz completely ignores him.

In fact, Bartz often has gone out of her way to take little gibes at Icahn since she got the top job in January, whether it’s to say he called her too much or that he could try to fire her if he did not like the job she was doing.

For example, she just dissed him publicly in a piece in Forbes, tossing off a saucy insult:

“Icahn is just another shareholder. What’s he going to do, fire me?”

But Yahoo was cordial to Icahn as he departed, even if a lot of people at the company who had battled him were likely thinking: “Don’t let the door hit you on the way out!”

“Carl has been an important member of our Board and has helped us through some significant transitions,” said the Yahoo statement. We are all grateful for his active role shaping the future of Yahoo! and wish him well in all his endeavors.”

Icahn in the second board member to leave under Bartz’s tenure.

Frontier Communications (FTR) CEO Maggie Wilderotter announced in late September that she was stepping down from the board by year’s end.

It will be interesting to see who–if anyone–will comes on board as a director and, of course, if there are more departures. After the departures of Wilderotter and Icahn, there will be 10 directors.

(Here is BoomTown’s No. 1 pick still in that regard.)

In taking his leave, Icahn praised the recent search and online advertising deal Bartz struck with Microsoft (MSFT), noting that it will “provide great long-term benefits, the potential of which many still do not understand.”

Nice final toss to try to spike the stock, Carl! But the MicroHoo deal, which has yet to be approved by regulators, was likely cold comfort for him.

Icahn sank large sums of money in Yahoo with hopes of a big score via the hostile takeover attempt by Microsoft at a price upward of $30 a share.

After that deal tanked, Icahn has seen his stake decline in value.

He sold 16 percent of his Yahoo shares in late August, leaving him with a 4.5 percent stake, or about 63 million shares.

It is also not clear today if Icahn intends to unload more of the stock.

In 2008, he couldn’t buy enough, scooping up the stock at much higher prices.

After mounting a proxy fight–including the lobbing of a series of poison-pen letters–against former CEO and co-founder Jerry Yang and his management team, Icahn got board seats for himself and two others (John Chapple and Frank Biondi) in July of 2008.

As Digital Daily’s John Paczkowski put it perfectly then:

“Having so persuasively argued that Carl Icahn is a doddering Luddite with no articulated plan for Yahoo other than the company’s sale to Microsoft, Yahoo has taken the logical next step and appointed the activist shareholder to its board of directors.”

At the time of the fighting, Yahoo used a quote from Icahn to insult him: “It’s hard to understand these technology companies.”

In a way, that is a pretty accurate description of Icahn’s long wrangle with the Silicon Valley icon.

And, while some might not agree with my take, this is the way the Yahoo world ends for Icahn: Full of sound and fury, signifying nothing.

Here is Icahn’s entire letter to the Yahoo board:

To the Yahoo! Board of Directors:

I am hereby tendering my resignation as a director of Yahoo! to take effect immediately.

When I joined the Board, the company was in a state of turmoil. In the period since then, we have all worked together to achieve much for the Company, most notably bringing Carol on to be the CEO and then consummating the search deal with Microsoft. I am proud to have played a role in both these decisions. Carol is doing a great job and I believe the Microsoft transaction will provide great long term benefits, the potential of which many still do not understand.

I don’t believe that it is necessary at this time to have an activist on the Board of Yahoo! and currently, my attention is focused on other matters. As a result, I do not presently have the time that is necessary to devote to the business and affairs of Yahoo! required if a board member is to fulfill his fiduciary duties to the shareholders

Again, I want to thank the members of the Board for acting so responsibly during my tenure. I look forward to maintaining my relationship with each of you.

Sincerely,

Carl Icahn

Microsoft has had a high-profile week, between launching its new Windows 7 operating system and striking real-time feed deals with both Twitter and Facebook.

But Wall Street is not expecting quite as much excitement from the software giant’s first-quarter earnings, which will be announced before the markets open this morning.

Both revenue and profits are expected to be down from the same period a year ago.

So any beating of expectations would be seen as a big deal by investors.

Microsoft (MSFT) will hold a conference call on the results at 7:30 am, which BoomTown will be liveblogging–mostly to enjoy the lilting accent of CFO Chris Liddell.

Analysts are expecting the company to report 32 cents a share on revenue of $12.4 billion. In the same period a year ago, Microsoft’s revenue was $15.1 billion on net income of 48 cents a share.

Microsoft’s execs have been striking a tone of caution for several quarters, largely due to the falloff in sales of personal computers in the wake of the econalypse.

In the last quarter, the company’s income fell 30 percent, for example, and it missed revenue estimates by $1 billion.

There have been no new products of any consequence in the first quarter, although Windows 7–which has been well-received so far–is likely to boost results in the months ahead.

Office 2010 is also coming out in the first half of this fiscal year, which should also add to a better future performance.

Microsoft digital head Qi Lu took to the stage at the Web 2.0 Summit conference this morning, where he confirmed a “strategic” deal with both Facebook and Twitter to integrate real-time information into Microsoft’s Bing search service.

BoomTown broke news of those twin deals earlier today.

Bing’s Twitter integration in beta form is now live here (see an image of it below; click on it to make it larger).

Facebook’s integration will come later, said Microsoft (MSFT).

Before announcing the deal, Lu–who is a quintessential techie–first went a bit deep into the weeds to talk about “how we think about search.”

Said Lu: “To start with, we think about search holistically…it’s about user intent. What it amounts to is that you are trying to build a mind reader.”

Top MSN exec Yusuf Mehdi then bounded onstage to talk about the deals with Twitter and Facebook and do a demo, which was what the audience gathered in San Francisco wanted to hear about and see.

“If today’s search is about getting to the UPS or the FedEx site, tomorrow is much more complicated,” said Mehdi, who described the deals as “strategic.”

Google (GOOG) is also in talks with both Twitter and Facebook about a similar arrangement, but Microsoft’s move was a clear one-upsmanship with its search rival.

And what Mehdi showed was impressive, with the ability to sort tweets in a number of ways.

Such information in search will obviously improve results.

Lu gave few specific monetary or operational details of the service–such as if Facebook and Twitter get a cut of its search advertising revenue or if Microsoft will archive the status updates–mostly focusing on Twitter, since it is first to roll out.

“This is just the beginning,” said Lu. “The Twitter corpus…is still evolving and emerging.”

Added Lu at the end: “Give us a try!”

Here is Microsoft’s press announcement on the deals with two of Silicon Valley’s innovation hotshots:

This morning at the Web 2.0 Summit in San Francisco, Qi Lu, President of Microsoft’s Online Services Division is announcing a new beta feature that enables people to easily search Twitter’s real-time information feed directly in Bing. This new feature helps people make better decisions and more fully understand Twitter conversations by collecting, analyzing and uniquely presenting real-time Twitter content.

More specifically, the new Twitter developments in Bing include:

A real-time index of the Tweets that match your search queries in results. This feature makes it easier to follow what’s going on by reducing the amount of duplicates, spam, and adult content.

Giving you the option to rank tweets either by most recent or by “best match,” where we consider a Tweeter’s popularity, interestingness of the tweet, and other indicators of quality and trustworthiness.

Providing the top links shared on Twitter around your specific search query by showcasing a few of the most relevant tweets. Additionally, Bing automatically expands those small URLs (like bit.ly) to enable you to understand what people are tweeting about. Instead of showing standard search result captions, we select 2 top tweets to give users a glimpse of the sentiment around the shared link.

You can try out the new Bing Twitter search beta here momentarily or learn more about it at the Bing blog. Please note that this is a U.S. only feature at this time.

Facebook Partnership

As part of his on-stage discussion at the summit, Dr. Lu is also announcing a global partnership with Facebook that will bring public Facebook status updates to Bing search results. The experience will be available at a later date.

In a stunning one-two punch, Microsoft will announce separate nonexclusive deals today with both Facebook and Twitter to integrate their real-time feeds of status updates into the Bing search service.

According to sources, Microsoft (MSFT) digital head Qi Lu will announce the deal onstage in a few hours at the Web 2.0 Summit.

BoomTown reported earlier today that the Microsoft data-mining deal with Twitter was poised to be announced.

But the addition of Facebook raises the stakes considerably because it has the largest pool of status updates, despite all the hype around Twitter. Facebook has previously stated that it has 40 million updates a day, on average, from its 300 million-plus audience.

Twitter has been talking to Google (GOOG) about a similar arrangement, and, according to sources, so has Facebook.

But the deal is a definite blow to the dominant search engine, since–for the first time–data will be available on Bing that are not available on Google.

Neither of the services is expected to be up and running for weeks, if not months. But there is the possibility of a demo today by Qi Lu of what it will look like.

What’s interesting about the deals, which have been in the works for several weeks, is that they will be very different.

Much of what is posted on Twitter is public by design, while Facebook users prefer the closed nature of the service to disperse a wide variety of personal information only to their friends, and they want to control it.

Thus, sources said, not all Facebook updates will be included in the real-time feed to be searched by Bing, but only those its users choose to make available to the wider public. Facebook will apparently provide users with a number of new tools to do so.

BoomTown first reported several weeks ago that Twitter was in advanced talks with both the search rivals about such a real-time search arrangement.

When asked about the talks onstage at Web 2.0 yesterday, Twitter CEO Evan Williams turned coy, according to numerous reports, joking “Whose deals?”

But, in fact, the San Francisco-based microblogging service was very much engaged in dealmaking aimed at gaining more visibility for the billions of tweets from its 54 million monthly users.

And so was Facebook, and it is probably a little irksome to Twitter that the rival social networking site will steal some of the thunder over the deal, which is sure to break out in the blogosphere today.

The two services represent the hugest trove of real-time and content-sharing information, generated from their massive data streams.

The deals with Microsoft might include a payment of several million dollars to both Facebook and Twitter, along with various revenue-sharing proposals that would give them a piece of the advertising revenue made from search results.

Doing these kinds of data deals with big search players does make a lot of sense, since it would be hard for both companies to turbocharge their own search engines without running into the big cash-laden guns at both Google and Microsoft, which recently launched the Bing search service.

Being deeply integrated into big search services would give both companies an even huger footprint.

Microsoft did a small experiment this past summer by integrating Twitter data into search results, starting with tweets of bloggers like me.

And the company provides search services to the Silicon Valley-based Facebook, part of a major investment deal it made several years ago.

Both Microsoft and Google had separately contemplated buying Twitter and Facebook in deals that never materialized.

But, if they both strike data deals with Twitter and Facebook, they will get the next best thing–an ability to offer all that real-time information to the masses from its most innovative sources.

According to sources, Microsoft is close to striking a nonexclusive data-mining deal with Twitter to integrate the microblogging service’s full feed into the results of its Bing search service.

News of the deal, which was still being worked on by engineers and execs at both the software giant and the start-up as late as yesterday, could even come as early as today at the Web 2.0 Summit conference in San Francisco.

Qi Lu, the head of Microsoft’s online services division, is being interviewed at the event at 11:30 am PDT.

Note: Lu is scheduled to appear onstage after Yahoo (YHOO) CEO Carol Bartz, who is now too sick to attend, the company said. She also missed Yahoo’s third-quarter conference call due to an unspecified illness.

Thus, Lu is the main event of Web 2.0 tomorrow morning and it would be a good place to make a big announcement, if the talks are successful.

But sources close to the situation caution that the deal could still run into a snag and was not yet complete, although it seems more likely than not that a deal will soon be struck with Microsoft (MSFT) first and then Google (GOOG), which is the other company Twitter has been negotiating with.

BoomTown had previously reported that Twitter was in advanced talks with both the search rivals about just such a real-time search arrangement.

There could be other possibilities on the table, said sources, such as one of the big companies advertising on Twitter or any number of other Twitter partnerships with either one.

When asked about the talks onstage at Web 2.0 yesterday, Twitter CEO Evan Williams turned coy, according to numerous reports, joking “Whose deals?”

But, in fact, Twitter, which is based in San Francisco, is very much engaged in dealmaking in this regard.

Here is what I wrote previously, as to what and why:

Sources said a number of scenarios are being discussed to compensate Twitter for its huge and potentially valuable trove of real-time and content-sharing information, generated from the data stream of billions of tweets from its 54 million monthly users.

These include a number of structures, including a payment of several million dollars to Twitter, along with various revenue-sharing proposals that would give Twitter a piece of the revenue made from search results.

The deals, stressed sources close to the situation, are nonexclusive, especially because Twitter’s management is keen to remain independent and also nonpartisan in the growing search battle between Google and Microsoft.

This means Yahoo–which recently struck a search-technology and online-advertising partnership with Microsoft–could also license Twitter’s feed to make its search results even more robust, although Boomtown could not determine if the company is in talks with the San Francisco start-up.

Sources said it is also possible that no agreement would be reached with either company.

And execs at Twitter, Microsoft and Google had no comment when asked about talks.

But doing these kinds of data deals with big search players does make a lot of sense, since it would be hard for Twitter to turbocharge its own search engine without running into the big cash-laden guns at both Google and Microsoft, which recently launched its new Bing search service.

Twitter is, instead, seeking to create a large open platform, which many could plug into, from search engines to marketers to publishers to developers.

Twitter has also been considering offering premium services to these groups and is contemplating some form of advertising offering.

But, most of all, Silicon Valley’s hot start-up is focusing now on spurring growth and engagement, along with fine-tuning its product offering.

Being deeply integrated into big search services would give Twitter a huge footprint.

Microsoft had already done a small experiment this past summer integrating Twitter data into search results, starting with tweets of bloggers like me.

How much indexing of its data Twitter will allow is unclear, but the company has certainly bought itself time to think carefully about all its options, given that it now has a lot of money in the bank.

Late last month, Twitter raised another $100 million in new funding, after already having raised $55 million.

This has given it a $1 billion valuation, despite negligible revenue.

The valuation also effectively stated that the innovative company was pretty much putting itself out of play to be acquired and is very interested in forging its own destiny.

Both Google and Microsoft execs have contemplated the idea of buying Twitter in the past, although no serious talks ever moved forward.

If they both strike data deals with Twitter, they will get the next best thing–an ability to offer all the information disseminated on Twitter in search results.

The legal high jinks in the contentious battle over the fate of Skype got worse this afternoon, as former Joost CEO Michelangelo Volpi and Index Ventures filed a motion to dismiss a lawsuit brought by the founders of Skype–Niklas Zennström and Janus Friis, via Joost and Joltid–against them.

It’s yet another chess move among a group of well-known tech players, who used to work together closely and are now at odds.

In a filing in the U.S. District Court in Delaware, Volpi and the London-based Index–where Volpi now works–noted, referring to a bid Zennström and Friis made to regain control of Skype, which they sold to eBay (EBAY) years ago:

“Instead of accepting the fact that their bid failed in the marketplace, Friis and Zennström are now using inflammatory and highly-charged litigation–through companies that have no relationship to the Skype purchase–to try to achieve their personal business goals.”

A spokesman for Joost and Joltid did not agree with Volpi’s assessment:

“Mr. Volpi’s latest motion appears to have been prepared prior to Defendants receiving Plaintiffs’ Motion for Preliminary Injunction, which is filled with evidence supporting Plaintiffs’ claims. In light of this strong showing of substantive evidence, much of it from Mr. Volpi’s own correspondence, there is no basis for Mr. Volpi’s assertion that Plaintiffs have somehow failed to state a claim upon which relief can be granted.”

Index was a small player within a group that won Skype, putting in $75 million, in a $2 billion deal that is set to close in the next few weeks.

The motion to dismiss the filing is not surprising given that Joost and Joltid filed a motion for preliminary injunction against Volpi and Index yesterday.

They are asking that he not use knowledge or confidential information he got at the video start-up in current dealings with Skype.

To complicate things further, the innovative and entrepreneurial pair also own a company called Joltid, which has licensed key technology for Skype to eBay.

Joltid and eBay have already been fighting in court over that agreement, bickering back and forth about whether eBay violated the terms of that deal or not.

Via Joltid, Zennström and Friis also filed suit again against Skype and its owner, eBay, for copyright violations in the U.S.

For good measure, they added the winning buyout group, including Index, Silver Lake Partners, Andreessen Horowitz and the Canada Pension Plan Investment Board.

And both Joltid and Joost have also sued Volpi personally, as well as Index, making serious allegations about his behavior as Joost CEO.

Here are several key legal filings to peruse, for all you “Law & Order” types:

Motion to Dismiss _00302105_ –

Opposition to Motion For Expedition _00302104_ –

Volpi Opening Brief 10.15.09 _00302101_ –

Perhaps the sides in the ever-escalating war over the Skype deal will work out their differences and settle–which is what should and probably will eventually happen after everyone realizes how stupid all this noisy legal wrangling over the Internet telephony giant is.

But that day is decidedly not today, given a pair of recent PR hires by parties involved.

The founders of Skype, via the two tech companies they control, Joost and Joltid, have hired Sitrick & Company, headquartered in Los Angeles, while Index Ventures has tapped Joele Frank, Wilkinson Brimmer Katcher, based in New York.

Both strategic communications and public relations firms are well known for employing some very sharp elbows and extremely tough talk when it is time for some creative corporate crisis management.

And both are familiar with tech issues, having worked on contentious issues related to companies such as Microsoft (MSFT), Yahoo (YHOO), CBS (CBS) online unit CNET, and others.

And there is plenty of bad blood to work with here.

Yesterday, in yet another legal volley, Joost and Joltid filed a motion for preliminary injunction against former Joost CEO Michelangelo Volpi and Index Ventures, where Volpi now works as a partner.

They are asking that he not use knowledge or confidential information he got at the video start-up in current dealings with Skype.

Legal attacks have become the negotiating tool of choice from the founders of Skype, Niklas Zennström and Janus Friis, who were on the losing side of the $2 billion deal to buy the Internet telephony giant from eBay (EBAY).

Volpi is now a partner at London-based Index, which was one of the smaller players on the winning side of the bid, putting up $75 million.

To complicate things further, the innovative and entrepreneurial pair also own a company called Joltid, which has licensed key technology for Skype to eBay.

Joltid and eBay have already been fighting in court over that agreement, bickering back and forth about whether eBay violated the terms of that deal or not.

Via Joltid, Zennström and Friis also filed suit again against Skype and its owner, eBay, for copyright violations in the U.S.

For good measure, they added the winning buyout group, including Index, Silver Lake Partners, Andreessen Horowitz and the Canada Pension Plan Investment Board.

And both Joltid and Joost have also sued Volpi personally, as well as Index, making serious allegations about his behavior as Joost CEO.

This kind of mud-slinging could get even worse with the hiring of big PR firms.

Along with Frank and Sitrick, by the way, Silver Lake–which is the big player on the winning side–has hired Edelman’s crisis and issues management team.

Interestingly, several sources said, the various players have also been engaged in settlement talks, even as the lawsuits have piled up.

Coming to some agreement is clearly the best outcome, although it does not appear that the spate of lawsuits has yet derailed the eBay deal with the Silver Lake-led group, which could even close in the next several weeks.

“Everyone should be thinking ahead of the headlights,” said one source. “But right now, it seems to be all about emotions.”