Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer (pictured here) had yet another one-on-one meeting yesterday evening at the D: All Things Digital conference in Carlsbad, Calif., said several sources, in ongoing discussions about a search and advertising partnership.

In addition, top deal execs from both Yahoo (YHOO) and Microsoft (MSFT) continued their talks, including Yahoo U.S. head Hilary Schneider and top Microsoft digital exec Yusuf Mehdi.

BoomTown originally broke the news recently that the pair had met in person several months ago to jump-start talks that had waned under Yahoo’s previous management.

Both Bartz and Ballmer were interviewed onstage at D7, and were asked about the talks.

Ballmer dodged the question about meeting, joking about a Post-It note Bartz had left him in the D7 Green Room.

Bartz acknowledged that they had been talking, but was not specific.

I’ve been through the desert on a horse with no name/It felt good to be out of the rain/In the desert you can remember your name/’cause there ain’t no one for to give you no pain.

Actually, for Yahoo (YHOO), which is holding its big annual meeting of the company’s advertising sales staff in Indian Wells, Calif., maybe just a little pain since BoomTown is only a scant few miles away, as the crow flies, attending the Demo09 conference in Palm Desert.

Don’t worry, Yahoo PR, I will not crash the proceedings or be bribing the bartenders to get more leaks. But you Yahoos should still be careful with the wine in the hot tub anyway–as Carol says, loose lips sink ships!

The gathering–to which Yahoos were greeted at Palm Springs Airport by purple Yahoo-capped greeters and were ferried to the Marriott’s Renaissance Esmeralda Resort & Spa via limos, according to many Demo attendees who ran right into the phalanx–is being run by Yahoo sales head Joanne Bradford.

Bradford has the unenviable task of selling into the weak ad market and driving sales, despite a very troubled economy and a company trying to claw its way back to stability. And, of course, getting Yahoo’s much buffeted sales staff jazzed up to do so.

Bradford will be helped in inspiring Yahoo’s large sales staff with what is sure to be a cussing-good appearance by CEO Carol Bartz.

Just last week, Bartz announced a massive reorganization of the company’s management to streamline it and make decision-making quicker.

“She thinks it critical she be there to get the troops excited,” said a Yahoo in the know.

Ye-haw!

How much do I wish I were there to see that performance? Much! (Except for the part in which I would be thrown out on my keester by Bartz herself, despite my plan to disguise myself by wearing all the Yahoo swag I have collected over the years.)

Instead, I am riveted to the goings on here at Demo. Right now, for example, I am watching an it’s-always-darkest-before-the-dawn session with venture investors on the dire economic situation, and about to see a new “touch book” computer.

Video of that and more, of course, to come.

Is it just me or does the sudden prospect of venture capitalists–the very investors who fueled the Web 2.0 valuation insanity with their typically egregious overfunding of start-ups–lecturing about the bleak economy and the need to tighten belts seem just a tad ironic?

It’s kind of like Washington politicians who handed out-of-control bankers one deregulation after another in exchange for campaign donations now mounting their high horses and decrying Wall Street greed in the current economic meltdown.

And yet, just like that, Silicon Valley’s investors–who could spin you all the way to next Sunday about how Facebook was actually worth $15 billion, despite not having much revenue quite yet–are turning into penny-pinching accountant types.

As reported by Om Malik of GigaOm in a piece titled “Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble,” for example, Sequoia Capital–one of tech’s most powerful and successful VC firms–held a meeting where it told its portfolio companies that the downturn was quite serious and advised them to start cutting costs.

Apparently, there was even a picture of a gravestone with “R.I.P.: Good Times” displayed at the gathering, in case the start-ups did not get the sledgehammer message. (And here is an update on the meeting by Malik.)

The last time Sequoia did this was when the Web 1.0 bubble was popping in 2000.

The same communication was also sent out to entrepreneurs by angel investor Ron Conway then, and now yesterday again.

The typically jovial Conway (pictured here) sent out a grim email to the start-ups he is invested in, advising they lower their burn rate to get ready for the tough times ahead.

Wrote Conway: “Unfortunately history DOES repeat itself but I hope we can learn from history and prevent the turmoil from occurring again. The message is simple. Raising capital will be much more difficult now … the name of the game in this environment in some respects is survival–survival until conditions change.”

Now he tells us!

In all seriousness, these kinds of prescriptions should have been front and center when times were presumably good, especially after the first orgy of Internet frothiness ended with such a thud.

Instead, the all-trees-grow-to-heaven attitude, the massively inappropriate valuations, the revenue-what-revenue strategies have been pushed on entrepreneurs in this cycle by too many VCs, most of whom should have known better.

And, while it is right for Sequoia and Conway to sound the alarm, I expect all the VCs who touted loudly will now climb aboard this somber bandwagon.

Because, after handing over too much money to start-ups like drunken sailors on shore leave, it is apparently now Sunday morning and time for a little salvation.

But not completely, of course, since this is still an industry where the dreams of hitting it big never die.

After I jokingly called Conway “Oh voice of doom and gloom” after reading his email, he quickly wrote back: “NO WAY DOOM AND GLOOM. I think innovation in the Valley will continue to thrive and I will continue to invest.”

Of course, Conway will. It wouldn’t be Silicon Valley if he didn’t.

And to raise your spirits from these wet-blanket VCs, here’s a video of Mike Settle singing the classic “What Shall We Do With the Drunken Sailor”:

But no! And, unless Microsoft (MSFT) mercifully steps in and forks over $34 a share to rebid for all of Yahoo, it’s likely this playground-level of fighting will go on until Aug. 1.

Why? Because that’s when Yahoo will hold its annual meeting, which is where Icahn’s proxy fight against the company will presumably come to a head.

Thus, it’ll be a long, hot, tit-for-tat summer and I expect my 3-year-old son–who can break out into “Kung Fu Panda” hiii-yah dementia at any moment–will be behaving better than this pair in the three months ahead.

I can’t believe that BoomTown is saying this–given that we hoped and prayed for the day when Yahoo would finally emerge from its year-long cone of silence and start talking.

As it turns out, those were the days, my friend.

Because the back-and-forth between Yahoo Chairman Roy Bostock and Icahn has all the annoyance of two cats howling at each other in the alley in the middle of the night and none of the suspense.

Let’s be clear: This is mostly Icahn’s poison-pen war, trying to whip up a big dish of shareholder ire, in order to increase his threat and, of course, the possibility of a big payday for himself.

Does BoomTown imagine Icahn cares one little bit about the employees of Yahoo or the best course of action for the company?

Not even one teeny-weeny little bit. And yet, he must drone on.

Like yesterday, when Icahn fired off another of his increasingly fanciful missives on the same basic theme: Yahoo is run by idiots.

Previously, he had focused on Yahoo’s botching of the Microsoft takeover fight, the evils of the generous severance plan Yahoo put in place and then on his intention to oust Yahoo CEO Jerry Yang.

Now, Icahn is moving onto a golden oldie with an accusation that Yahoo let Google (GOOG) clean its clock over the last few years.

What? You’re kidding! Actually, even the not-so-swift Jo from “The Facts of Life” would have caught onto that fact of tech life long, long ago.

Nonetheless, Icahn blusters: “I ask again what your great ‘plan’ has been over the last few years. … Why did you permit Google to leave you in the dust?”

Previously, he had meandered into spy-versus-spy territory with this gem: “Until now, I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board.”

Cue the 10-second countdown of the nuclear missile aimed at New York, as Yang strokes his white Persian cat malevolently!

Which is why it is perplexing that Yahoo chooses to so quickly engage with Icahn by answering such dopiness.

But Bostock did with the seriousness of a righteous preacher, when he stated primly last week: “Conspicuously absent from your letter is any credible plan for Yahoo other than a repetition of your insistence that the company should sell itself to Microsoft. Indeed, your stated view that ‘the only way to salvage Yahoo in the long if not short run is to merge with Microsoft’ demonstrates that you have no other plan and causes one to wonder what exactly would happen to our company if you and your nominees were to take control of Yahoo.”

Well, it is a good point, but hardly one that makes me cheer for the Yahoo side to win.

And then again yesterday, in a letter to shareholders about the upcoming annual meeting, Yahoo gave this limp defense for not backing Icahn, without including new ideas of why its incumbent board deserved a second chance:

“Given Microsoft’s stated position of not wanting to acquire Yahoo, the election of Mr. Icahn’s slate could result in substantial erosion of stockholder value.”

Apparently, there is one thing the pair do seem to agree on, and so do I: A substantial erosion of shareholder value seems inevitable as this caterwauling continues.

What do you do when you want to inject a little inspiration into a company that needs a lot of it?

Do you hold an all-day meeting of top execs where you actually outline specific goals and exhibit better leadership?

Do you admit your corporate culture is a little weak and promise to focus on strengthening it?

Do you trot out all the senior execs and let them talk about their concrete plans (and, better still, actually prepare them to deliver their spiel with some level of quality)?

Do you do some post-lunch touchy-feely group exercises to get people talking?

Best of all, if you really want to send things over the top, do you bring out an icon so beloved as to give goosebumps to explain to the troops how he managed to turn his once-beleaguered and now-soaring company around?

All that and more occurred on Friday at Yahoo HQ as CEO Jerry Yang and President Sue Decker really put on a show that seemed to resonate with the 300-plus top Yahoo executives (vice president and above) gathered there, capped by an appearance by Apple’s Steve Jobs, who is apparently now Silicon Valley’s equivalent of Oprah.

Most people I spoke with said they grudgingly started the day with very low expectations, but found they quickly warmed to a heartfelt but clearly articulated message by Yang and Decker of what Yahoo needed to do to revive itself.

“Our leaders finally showed some leadership,” said one longtime exec in attendance, who–like many Yahoos–has become extremely disheartened by the downward drift of the online giant of late. “Both Jerry and Sue actually obviously took time and care to think about what we should and, more importantly, should not be doing.”

Said another: “It was not as if there was some huge revelation, but a reminder of the great assets we have that makes our destiny all about execution.”

The day, organized by PR head Jill Nash and others with the help of San Francisco-based consulting firm Stone Yamashita Partners, also included talks led by top Yahoo brass–primarily Yang and Decker.

But also on stage: Jeff Weiner (EVP, Network), Hilary Schneider (EVP, Global Partnership Solutions), Ash Patel (EVP, Platforms and Infrastructure) and even Blake Jorgensen, whose videos and general presentation got high marks from those I talked to (who knew a CFO could be so funny?).

The big idea of the day centered on a word Yang used a lot in the July investors’ meeting (where he also unfortunately promised a top-to-bottom review within 100 days and that there were “no sacred cows” at Yahoo): Ecosystem.

And by this, I think he means a virtuous circle of advertisers, publishers, consumers, all married together by great products and content. It’s a nice word for Yang’s vision, although as any high-school science student knows, ecosystems are very delicate and can get thrown out of whack easily (check out this lovely woodland one below and guess which Yahoo exec is the skunk!).

Among the key focuses of this ecosystem mentioned Friday was: the building out of Yahoo’s ad network, taking advantage of its “consumer insights”; the creation of a healthier corporate culture where fresh ideas could bubble up more effectively and be launched with less agony; and a new move to create a more open network a la Facebook on Yahoo for third-party developers to publish on and create more robust offerings.

Many were dubious about the latter and Yahoo’s ability to open itself up and become a truly accessible platform play, rather than just a good partner for publishers.

That’s because its portal origins are more a command-and-control, owned-and-operated style that will be hard to shake–kind of like The Wall Street Journal inviting outside reporters to contribute.

But it was a brilliant choice on the part of Yahoo leadership to use the halo effect of Jobs–whose story of struggle over adversity is well known–in focusing their execs toward the new direction for the company.

(And it is surely a quantum leap up from former CEO Terry Semel’s choice of the, shall we say, unusual musings of Tom Cruise as a motivational tactic.)

Yang interviewed the much more appropriate Jobs, admitting up front that he was “nervous” for the first time that day when he sat down to chat with the tech legend, whom Yang called one of his heroes.

Jobs basic message: You have great assets–just like Apple did–and now it is all about execution.

Thanks, Steve! (Although easy for him to say, given Yang does not exactly have the kind of emperor thing going for him in this regard as Jobs does).

Actually, execution has always been Yahoo’s weakness, so that’s the right way to frame it, given the Yahoo-as-loser theme really has not been the most accurate.

It’s hard to imagine another company with such amazing assets–traffic, those valuable consumer insights, a spate of terrific products–allowing itself to be written off so easily. Anyway, that’s my job!

All kidding aside, while ups and downs are certainly part of the business cycle, Yahoo has been wallowing in the down for longer than it needs to be without articulating both outwardly and inwardly what is needs to do and, more importantly, to be.

The Friday meeting seems to have solved that internally at least, with VPs going back to their jobs feeling jazzed up and ready to rumble.

Now, it will be up to Yang and Decker to keep up the enthusiasm they clearly generated at the Friday meeting, even up until the very end of the day by unveiling 10 key principles for the company (a lot on corporate culture and not very specific, but it’s good to write these things down).

To my mind, that means cutting deadwood and allowing employees to feel empowered. It means saying yes a lot more than no. It means making some big, bold and maybe even dumb moves in the areas targeted to shake a few trees. It means laser-focus on the promises made.

And it means perhaps even continuing to have meetings like this too, much more regularly and for everyone (by the way, rival Google has a company-wide, ask-the-execs-whatever event in Mountain View weekly, so steal that idea for starters).

And externally, Yahoo needs to come out of its corporate cave, where it has been living for far too long.

While that makes sense sometimes, Yahoo is simply indulging in a broken corporate mantra of not talking about what they are doing at all, because of an irksome “We’re not ready to show you” proclivity on every product or offering.

Web 3.0 is not secretive and will be very, very open. So I think we all know by now that being fussy perfectionists in a fast-moving world of tech is no longer advisable.

Take a lesson from Jobs–roll them out and keep up the momentum and excitement as you do. (Well, don’t copy his most recent cloddish moves to iBrick iPhones, which only reveals the dictatorial steel fist under the velvet glove way too much).

And even then, as Jobs does even when in trouble, don’t avoid the spotlight.

In other words: Call, write, we miss you. And, as a gesture of good faith, I officially invite Yang for breakfast at AllThingsD HQ–that would be the cottage behind my house–on Day 99 (Oct. 24!) of his No-Sacred-Cows Vision Quest.

Because like he said to his troops on Friday: After all, tomorrow is another day.