The stock seesaw for Yahoo–fueled this time by a story in The Wall Street Journal claiming that former AOL CEO Jon Miller was seriously buttonholing private equity firms for money to buy the Internet giant–continues.

Yahoo shares rose seven percent due to the report, to $11.50, up 76 cents.

Unfortunately for everyone but stock manipulators, the Journal story had a lot of problems, including the highly pertinent fact that Miller has not been actively working on such a deal with any more effort that he had been over the last six months.

The Journal was basically correct that the idea of buying Yahoo (YHOO) has long intrigued Miller, who has not particularly hidden that sentiment, for a long time.

In fact, it is an idea that has drawn interest from many in the media and Internet space.

That is, except Microsoft (MSFT), which many investors still hope will revisit its failed takeover bid for Yahoo.

While a Microsoft spokesman would not comment yesterday, top sources there said they had not been working with Miller on such a deal. The Journal obliquely suggested the software giant might be involved.

Finally, while the Journal did call the Miller effort “informal,” it is actually even more casual than that. No money has been raised and Miller–along with his partner, Ross Levinsohn, in the Velocity Interactive Group–has not been mounting the kind of organized campaign described in the Journal, said several sources.

“Nothing is different now than it was last week, or even months ago,” said one person close to the situation. “It’s a mystery why that story came out now and who would put this out.”

While sources close to the situation BoomTown spoke to today also noted that Miller and Levinsohn have been in many meetings with potential investors about Yahoo, most of those people have sought them out rather than vice versa.

And none of the talks has been serious, as the pair have mostly been spending their time raising a $300 million fund for Velocity.

“When someone asks for a meeting to discuss investing in Yahoo and is credible, it’s not unusual to meet with them,” said one source close to the situation. “There have been a lot of conversations for a long time, but it ebbs and flows and most lead nowhere.”

That’s been especially true since the economy has collapsed and the credit markets have dried up, making it hard for anyone to raise the tens of billions of dollars it would cost to buy Yahoo or any company whose shares have waned.

The prices mentioned by the Journal were also unusually high, from $20 to $22 a share for Yahoo, or $28 to $30 billion in total. That is almost double its recent valuation.

“Anyone would love to get Yahoo for a bargain, but it is a complex and troubled situation too, so it’s also hard to pin down anyone to truly put up the money,” said another source. “No one can put it together and no one would at those prices either.”

But Yahoo remains an enticing target, despite its troubles, given its huge Web traffic and panoply of attractive online assets.

That’s been especially true as Yahoo’s shares have dropped well below $10 a share, from close to $30 earlier this year.

And Miller would be well positioned to take on a Yahoo deal, if it were possible. He has been mentioned as a candidate in its recent CEO search, after current CEO Jerry Yang announced he was stepping down.

Miller was also the choice of Carl Icahn, when the activist shareholder was waging a proxy fight against Yahoo, to lead it. It was a scheme that never panned out, mostly due to Miller’s indifference.

Miller was later Icahn’s top choice for a Yahoo board seat–Icahn got three after he settled with Yahoo and is now on its board.

But a noncompete agreement with Time Warner (TWX), which fired Miller abruptly from AOL several years ago, was enforced by the company, preventing Miller from becoming a director.

That noncompete is in place until the end of March, which would present yet another obstacle to Miller leading Yahoo.

Several sources said Miller has discussed interest in figuring out how to revive Yahoo with Icahn many times and they serve on a board together. But Miller has not discussed it formally with Yahoo leaders or made an kind of approach to the company.

What is most intriguing about the Journal story is why it would appear now, except that dubious Yahoo rumors have become too common of late, all of which have been debunked.

Just last weekend, for example, an inaccurate report appeared in the Times of London that, ironically, had Microsoft and Yahoo in a convoluted search deal, with Miller and Levinsohn as the picks for co-CEOs. All parties mentioned in that full-of-holes report denied it was true.

Full disclosure: Both the Times and the Journal, as well as this Web site, are owned by News Corp. (NWS).

And the media giant has–in the last year–been deeply involved in discussions with both Microsoft and Yahoo about potentially doing various kinds of deals and partnerships with its interactive assets, including MySpace.

A report in the Times of London in which Microsoft would buy Yahoo’s search business in a convoluted $20 billion deal that would include well-known Internet execs Jon Miller and Ross Levinsohn, is–in the words of one key player–”total fiction.”

Actually, that’s Levinsohn speaking, on the record. But that’s also the essential word from all key players regarding the Times’s report.

BoomTown has spoken to top sources at Yahoo (YHOO) and Microsoft (MSFT) too and all scoff at such a deal now taking place or that either side has been in any such discussions of late.

Yahoo’s entire market cap, in fact, is only $16 billion.

Rumors of Microsoft buying all of Yahoo have popped up regularly since it abandoned its failed takeover bid, all of which have been untrue.

That’s not to say there will not be some search deal between Yahoo and Microsoft, which seems more than likely at some point.

It makes sense on many levels and is supported by Carl Icahn, the Yahoo board member who upped his money-losing stake in the company last week.

That stock purchase should be enough of a reason for there to be no Microsoft-Yahoo search deal imminent, given Icahn would be more than well aware of it and buying up almost seven million Yahoo shares–now at historic lows–only days ago would smack of insider trading.

Still, the report in the Times has an unusual level of detail, involving Microsoft giving large gobs of money to Levinsohn and Miller.

Wrote the Times:

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.

This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.

The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.”

Sounds good, except it’s the first time Levinsohn has heard of the plan, he said. Sources at Microsoft and Yahoo also said there was no deal like that in the making at this point in time.

Earlier this year, there was also another deal involving Icahn, before he gave up his proxy fight against Yahoo in exchange for a board seat, which did involve Levinsohn and Miller taking over Yahoo.

But, as has happened to many schemes involving Yahoo, it never came to pass.

Interestingly, there was also a similar investment deal as the one described in the Times, many months ago, just after Microsoft had walked away from its takeover battle for Yahoo.

It involved a very complex transaction involving Microsoft buying a large stake in Yahoo shares, running Yahoo’s search business for a time period and giving Yahoo a huge guaranteed revenue stream.

But that deal had already been spurned by Yahoo for the search-ad deal with Google (GOOG), which collapsed recently under intense regulatory scrutiny.

That has focused a lot of attention back on a possible deal between Yahoo and Microsoft, the No. 2 and No. 3 players in search, both of which have been chasing Google without any success.

Microsoft, despite spending billions, has been lagging badly behind Yahoo, which has more than doubled its share.

And that is precisely why it has long been interested in acquiring Yahoo’s search business.

Microsoft CEO Steve Ballmer has said the software giant is not interested in buying Yahoo many, many times, although he has not ruled out a search deal of some sort.

But Microsoft, many sources said, has been waiting for Yahoo to get another CEO in place, after Yahoo CEO Jerry Yang recently said he was stepping down to make way for a new leader.

Yahoo has also said in recent days that it is not currently engaged in any kind of talks with Microsoft, even about a more likely search deal.

At least in this chapter of the drama that has engulfed Yahoo over the last year, believe them.

[Full disclosure, though run separately, The Times of London is owned by News Corp. which also owns this Web site.]

At least Yahoo got one day of stock euphoria, on the news that its CEO, Jerry Yang, was stepping down, before Microsoft CEO Steve Ballmer dropped yet another bomb on the troubled Internet giant by saying once more with feeling that he is not at all interested in buying it.

Yahoo (YHOO) stock plummeted on the news, dropping below $10 a share to close at $9.14, down $2.41 or an astonishing 21 percent.

While lack of interest in acquiring Yahoo is a sentiment that Ballmer has expressed more times than Alaska Gov. Sarah Palin said “maverick” in the presidential campaign, Wall Street continues to hold out hope that Microsoft might swoop in and make a new takeover bid for all of Yahoo.

It will not. Let’s repeat. It. Will. Not.

Thus, an obviously frustrated Ballmer reiterated his nondesire for Yahoo at Microsoft’s annual shareholders meeting, near its Redmond HQ today.

“We are done with all acquisition discussions with Yahoo,” Ballmer said. “We did our best…we’ve moved on.”

And so should investors, stock analysts and hedge fund vultures, who actually contact BoomTown on a daily basis, asking if when I wrote that Microsoft (MSFT) was not interested in buying Yahoo, I actually meant that it was interested.

Not interested means, well, not interested, except when it comes to those who wish fervently for a pop in Yahoo stock.

But the only way that is going to happen is slowly, as Yahoo rebuilds its much-battered business, brick by brick. And that presumably will happen when a new CEO is selected to run Yahoo.

Lucky for Yahoo, what Ballmer has repeatedly also said is that he was very interested in (and said again today) a search partnership deal with the company.

Microsoft essentially wants to take over that part of Yahoo’s business and will likely give it a pretty penny to do so. For all its troubles, Yahoo remains the No. 2 search player, well behind Google (GOOG), but well ahead of Microsoft.

Microsoft execs think grabbing Yahoo’s business will help it gain on Google–good luck with that, but it gets an A for effort!

And it also hopes another reorganization of its digital businesses will help it do so.

Right now, for example, newly annointed digital exec Yusuf Mehdi is deep in the midst of a restructuring of his division.

Mehdi’s online services portfolio at Microsoft now includes marketing, online audience business development and product management for MSN and the search properties, but divisions and execs are being shifted around.

But the big news, of course, will be the person Ballmer selects to be Mehdi’s boss, as well as the boss for Satya Nadella, the SVP who heads engineering for Microsoft’s search, portal and advertising platform group, and for Brian McAndrews, the SVP for the advertiser and publisher solutions group.

While Ballmer has taken his sweet time in picking someone, after Kevin Johnson left his post overseeing the division in late July, sources inside and outside Microsoft have told me the company is very close to picking a new head.

That would be a good thing since Ballmer has worn out his Rolodex trying–he has been turned down by many, including former Yahoo CEO Dan Rosensweig.

While I am trying to ferret out the current choice, sources said the main candidate is more technically oriented and is well known in Silicon Valley.

Please see this disclosure related to me and Google.

Today, Yahoo shares plummeted almost nine percent to close at $10.34, off $1.01, in yet another freefall that has all sorts of disturbing implications for the troubled Internet company.

For one, it makes the merger possibilities with Time Warner (TWX) online unit AOL that much more difficult.

Yahoo’s market cap is off another billion dollars to $14.3 billion right now, and that has a big impact on how much it can pay to own AOL. If at all, that is.

In addition, the options of Yahoo (YHOO) employees are so under water as to be Atlantis, which is sure to make it harder–even in this weak economic environment–to retain and attract talent.

At the very least, it creates a very gloomy Yahoo corporate campus in Sunnyvale.

And while shares of all tech giants were off yesterday, part of the continuing worry about the advertising market online, Yahoo’s drop was significantly more than the others.

It reflects a deep worry among investors about the prospects of its current leadership under CEO Jerry Yang to pull off a much needed turnaround.

If Yahoo shares drop below $10 a share (remember the halcyon days only a few months ago, when the $20-a-share Rubicon was scary?), it creates a very ironic situation.

That being that the company is a true bargain for a buyer interested in scooping up one of the Internet’s still most-trafficked properties, except that not many have the wherewithal in this financial meltdown to pay up.

Except, of course, for Microsoft (MSFT), which has expressed so much disinterest in buying Yahoo as to be pathological about it.

Instead, in its continuing obsession with messing with archrival Google (GOOG), it focuses on overpaying copiously for a search deal to get on the mobile phones of Verizon (VZ).

But at a $10-or-less price tag for a business that could still turbocharge his company’s even less impressive online search and advertising efforts, isn’t it time Microsoft CEO Steve Ballmer got some therapy to get over his Yahoo issues?

It could happen.

That specific scenario of putting someone like the two former Internet execs (they ran Fox Interactive Media and AOL, respectively) in charge of the troubled Web giant is one of the many being bandied about, as Yahoo shares tumble and the company heads toward a potentially ugly annual meeting everyone involved desperately wants to avoid.

In fact, Yahoo’s board and major investors are talking today about various options for the company, including Yahoo’s receptivity to a sweetened deal with Microsoft and also other ways to pull the asset-rich company out of its stock doldrums.

It is not likely to be a very chummy meeting, of course, considering Yahoo’s stock (see this depressing chart to the right) has been drifting inexorably downward with nary a lifesaver in sight.

Yahoo shares sunk ever closer to $20 (it closed today at $20.66, down more than three percent)–a worrisome crossing of the digital Rubicon for the company, given that it makes Yahoo more vulnerable to all sorts of Wall Street machinations.

Besides allowing other large companies like News Corp. (NWS) and Comcast (CMCSA) to consider bids for Yahoo–both have been watching the situation very carefully, sources said–it also opens Yahoo up to attacks from more rapacious private equity investors.

And there is a lot of machinating already, of course, as I have found poking around, with more to come.

Like what?

Like Yahoo back in discussions with AOL once again. Sources close to the situation said that the idea of hooking the pair up have been revived, as Yahoo looks to strengthen itself and Time Warner (TWX) searches for any way to spin off a division it has never been able to juice up.

Of course, Microsoft has also been sniffing around the property too–and almost bought AOL several years ago–and would be unlikely to sit still and let Yahoo grab AOL’s most attractive asset, its Platform A online advertising unit.

(Memo to Time Warner CEO Jeff Bewkes: You’re known as a smooth deal-maker, so paste on that million-dollar smile and get dealing!)

And, more interestingly, are the moves to try to find another CEO and top leadership to come in and run the company instead of Yahoo CEO Jerry Yang and President Sue Decker.

(I had previously posted on possible picks for that job here.)

That could come in either a friendly or non-friendly approach, according to several people close to the situation.

Under the friendly scenario, Yang would voluntarily step aside–and even be upped to non-executive chairman status–while a new CEO and team would be put in place.

A less dulcet approach, which would require an aggressive move by Yahoo’s board–who make head-in-the-sand ostriches seem active–against Yang directly is less likely.

Still, many investors, increasing numbers of employees and even some Yahoo board members have lost confidence in Yang and Decker, who have been trying to set a new course for the company.

But does a new course require new leaders?

Levinsohn and Miller (pictured here, left to right), who now run an online-focused investment fund called Velocity Interactive, are two high-profile former Web execs mentioned most frequently by major Yahoo investors as candidates for that idea.

Sources said could either come in as board members or actually run the company for a time period, while searching for a new CEO, like OpenTable’s Jeff Jordan, Google’s Tim Armstrong or even Microsoft’s Kevin Johnson.

Such as plan could include additional investments by new investors and critical buy-in by current investors–including billionaire activist Carl Icahn, who is waging a proxy fight against Yahoo that is set to come to a head at the Aug. 1 annual meeting.

Most important would likely be cooperation from Microsoft too, which could offer to also buy some of Yahoo and also sweeten its search-ad deal.

It would also require a new plan for Yahoo, which will likely include job cuts and a more drastic refocusing of its business that perhaps only outsiders can do.

As its founder, not surprisingly, Yang has been slow to make the kinds of deep changes many think Yahoo requires to reinvent itself, and Decker has been part of the team that has gotten the company mired in its current state.

While this all sounds incredibly complex, all scenarios point in one inevitable direction: Massive change is coming to Yahoo in the next 30 days, one way or another.

Apparently, according to Yahoo, Microsoft is as clever and deceptive as the buff and gun-toting Angelina Jolie in the new film “Wanted.”

BoomTown will get to that later. But with Yahoo (YHOO) stock hovering close to $20 a share, Microsoft (MSFT) has certainly got to be thrilled that the sweetened search-ad deal it is currently preparing–including forking over about $10 billion for one-third of the company–is getting cheaper by the minute.

With Yahoo’s stock at a disturbing $20.96 right now–and headed lower, it seems–its market value is only $28.4 billion, a depressed number that has sent its investors into a tizzy.

As I wrote last week, it’s those investors who are pushing Yahoo’s board to consider accepting a new version of Microsoft’s search-ad proposal that it turned down in favor of one from Google (GOOG) recently.

Those same investors had urged Microsoft to make a sweeter offer, promising a more cooperative Yahoo, especially now that it faces an upcoming proxy fight with billionaire Carl Icahn at its Aug. 1 board meeting.

Microsoft has no interest in swallowing Yahoo whole–although the dropping price does make it kind of tasty.

But it has been working on a beefed-up search deal, with more revenue guarantees on search ads and a higher price for search assets it would buy outright.

The centerpiece of the offer, of course, would be a deal to buy about one-third of Yahoo from existing shareholders at a premium to where it is trading now.

In its previous search-ad offer, Microsoft had offered to buy 16% of Yahoo for $8 billion at $35 a share.

Many large investors, disillusioned with the leadership of CEO Jerry Yang, have warned him and the board that they will vote with Icahn unless Yahoo engages with Microsoft and fast.

If Yahoo does change its mind and strike a sweeping search-ad deal with Microsoft, though, it would have to pay Google a $250 million fee for killing the deal.

Still, Yahoo took the opportunity today to ding Microsoft once again about its botched takeover battle, in a regulatory filing related to the proxy fight.

In the document, it called the software giant “unresponsive and inconsistent,” and noted “the record casts doubt on whether Microsoft was ever committed to a whole company acquisition.”

(See Yahoo’s slide on the issue below–click to make it larger)

Ooooh, it almost sounds like Yahoo is saying Microsoft carefully planned this intricate scheme to get Yahoo into this prone and disastrous position.

It’s almost as complicated as the plot of the thriller “Wanted”–BoomTown recommendation: Two thumbs up!–in which an office drone played by James McAvoy is whipped into deadly-assassin shape by a leather-clad Angelina Jolie and also badly tricked by her.

Yahoo’s leadership only wishes they had Angelina to kick them around.

Unfortunately for shareholders everywhere, they seem to be doing a very good job of it all by themselves.

As an added plus, here’s the “Wanted” trailer:

Here’s an email I got from a high-ranking Yahoo (YHOO) employee today after the Microsoft (MSFT) deal was declared dead and the ad-outsourcing deal with Google (GOOG) announced hours later:

“Out of the frying pan, into the fire. At least, the frying pan was a slower death.”

And here’s an email from a major Yahoo investor–no, not Carl Icahn!:

“The Board and Jerry are idiots.”

And those are people who presumably like Yahoo, since they work there and buy its stock.

Well, both got a big dose of disappointment today, as Yahoo shares dipped to $23.50, losing 10% of their value.

It’s just as ouch as that old pick-up line: “Did it hurt when you fell from heaven?”

Yahoo, of course, has fallen from a little lower in the stratosphere.

But the abandonment of a $33-per-share deal that Microsoft might have meant is gone, baby, gone and the prospect of a lot of negative attention over a questionable partnership with Google adds up to a lot more turmoil ahead.

Of course, turmoil has been the weather forecast for Yahoo for far too long now.

And there is possibly more to come. Many, many sources told BoomTown to expect more major departures from Yahoo’s ranks, including from its board.

According to people familiar with the situation, not every board member was thrilled with Yahoo’s Google alternative.

But not every board member, like a lot of Yahoo employees, has a lot of control over the troubled Internet company.