Gifts.com President & CEO William Lynch, who founded the site for IAC (IACI), will transition to HSN full-time as its EVP of marketing and content. He had previously been managing the HSN.com site, while also running Gifts.com.

The site, which also offers gift cards that can be redeemed at over 100 merchants, is now a 40-person operation.

Rapp has been with IAC since 2006 and, prior to joining the company, worked at the New York Times Company.

After a contentious battle with large shareholder Liberty Media, IAC is in the midst of separating itself into five publicly traded companies, expected to be completed in the third quarter, spinning off HSN, Ticketmaster, Interval International and LendingTree.

Left in the new IAC will be: Ask.com, Bloglines, Citysearch, CursorMania, Evite, Excite, IAC Advertising Solutions, InsiderPages, iWon, My Fun Cards, My Way, Popular Screensavers, Smiley Central, Vimeo, Webfetti and Zwinky, Match.com, ServiceMagic, Shoebuy.com, Entertainment Publications, ReserveAmerica; Pronto, Gifts.com, Green.com, Primal Ventures, InstantAction, BustedTees, CollegeHumor, GarageGames, RushmoreDrive.com, Very Short List, and 23/6.

Also included will IAC’s current investments in Active.com, Brightcove, FiLife, MerchantCircle, OpenTable, Points.com and SHOP Channel.

Much, much, much.

Yesterday, the battle between InterActiveCorp’s Barry Diller and John Malone of Liberty Media (pictured here in cartoon form) got much more interesting.

As luck would have it, I will be interviewing Diller onstage at the Monaco Media Forum in Monte-Carlo this week–yes, it’s as glamorous as it sounds–so now there will be lots more to talk to him about at the digital gathering.

Diller is an excellent interview–he’s appeared at two D conferences–as he likes to parry more than the average CEO and he is good at it.

Very good, as it turns out, when dealing with Malone.

By way of background, Liberty has indicated it wants to rid itself of the 24% of IAC it owns. That stake has 58% super-voting rights, but it’s controlled by Diller via a past agreement.

So, Malone has been applying public pressure, leveling some choice barbs at Diller.

In a previous piece in The Wall Street Journal, Malone came out with this gem: “There was a time when there was, I think, a 20% Barry premium. Today you could argue there is a Barry discount.”

To deal with the pressure, Diller made the move to carve up the $9 billion holding company, made up of a variety of Internet properties, chopping and dicing more than a Ginsu knive demonstrator selling his heart out on his HSN cable-shopping network (see IAC revenue chart below).

It’s a major reversal for Diller, who has spent many years assembling IAC and who even talked about the importance of its synergies. Now, under his proposal, it will be split into five parts, all separately traded, essentially separating the wheat from the chaff.

Faster-growing and more prominent Web outfits Ask.com, Citysearch and Match.com will remain in IAC. HSN, Ticketmaster, Interval International and LendingTree would become separate, much as Diller’s travel sites became in a previous deal in 2005.

And under terms of Liberty’s proxy agreement with Diller, Liberty could get its stock power back in the spun companies–the ones Diller does not care about as much.

Even Malone was warily pleased. “It unsticks some things,” he said in another article yesterday in The Wall Street Journal.

Well, at least it’s a both tastily complex horse-trading scheme, typical of Diller, but also has a simplicity to it.

Still, Diller faces some basic Internet issues as he seeks a slimmer future.

For example, Ask, which just re-signed its guaranteed ad deal with Google, is innovative in its search results approach in a way Yahoo should be (we’ll forgive the company its misguided Kato Kaelin ad campaign).

But it is still a small player, with 5% of the U.S. market (although a network of sites it has gives it a bit more clout), which limits its scope and power.

In other words, small may be beautiful, but it’s still small.