According to sources close to the situation, AOL has been busy selecting the board for the company, which is still set to spin itself off by year’s end–even as it slows down a decision on a new search deal with either current partner Google or a more emboldened Microsoft.

AOL is using Spencer Stuart in the search for directors, led by well-known headhunter Jim Citrin, sources said, and the company has already settled on several outside candidates.

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Here is a video interview I did today with AOL CEO Tim Armstrong in Germany–really!–where we both were appearing at a digital marketing conference.

In it, the former Google exec talks about a range of things, including the possibility of charging for content, innovating in the graphical advertising market, competition with Yahoo and the upcoming spinoff of the Time Warner unit.

But what he did not say is just as interesting.

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After a while–in a BoomTown mangling of the old cliché–if you are a nail, everything begins to look like a hammer.

So, it is probably inevitable that the next thing for much-beleaguered AOL staffers to start rumbling about is 2,000 people getting laid off next week.

After all, the Time Warner unit has a long history of whacking employees. So, it is easier to assume things will not be different under the regime of the latest CEO, Tim Armstrong.

Except it’s not actually true that such massive cuts are in the offing, since–as many sources I spoke to said–Armstrong is in the early part of figuring out what to do about the cost structure of AOL, after laying out a company strategy and rejiggering management.

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When Time Warner reports its second -quarter earnings tomorrow morning, before the markets open, most Wall Street analysts are not expecting much from the media giant, as it continues to slog toward a rejiggering of itself.

Time Warner–which owns assets like the Warner Bros. movie studio, the AOL online unit, the HBO and Turner cable networks and Time Inc. magazines–is expected to earn 37 cents per share, compared to 72 cents a year ago, according to a poll of analysts from Thomson Reuters.

Revenue is expected to be $6.97 billion, down from $11.56 billion in the same quarter last year. This drop is mostly due to the March spinoff of its cable unit, Time Warner Cable.

But AOL and its magazine unit are expected to continue to drag on Time Warner’s financial performance.

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Back in April, Tim Armstrong sent a memo to the long-battered troops of AOL about a 100-day vision quest the new CEO and chairman was going on to find out “how to bring back the magic of AOL.”

It is now Day 86, and Armstrong is closing in on the end of a Where’s-Waldo commitment that he made then to visit all of the far-flung offices of the Time Warner online unit globally to find out what’s what and what he should do to turn AOL around.

BoomTown is eager to see what Armstrong has found out on his trip and what path it will ultimately put AOL on.

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Adding the final leg of its new strategy to reinvigorate AOL, the Time Warner online unit said it was buying two small local start-ups, Patch Media and Going.

Each acquisition–which focus on hyperlocal community news (Patch) and events (Going)–is small, about $10 million.

Ironically, local has previously been a big arena for AOL, which launched its Digital City unit with great fanfare more than a decade ago. AOL still runs Digital City, as well as its CityGuide listing offering.

But, in a move that will surely be scrutinized, Patch is a company whose principal investor has been AOL’s new CEO Tim Armstrong. AOL declined to say how much he had invested in the company, but sources said it was less than $5 million.

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While there were reports that the Time Warner board was meeting today to approve the spin-off of its AOL online unit, it actually gave the move an “enthusiastic endorsement” last night, according to sources.

Time Warner just put out the press release about the move that would make AOL an “independent, publicly traded company.”

But, several sources with knowledge of the situation said AOL CEO and Chairman Tim Armstrong is set to make massive changes to the structure of AOL, sweeping aside its current set-up almost completely.

That includes keeping the access business, which many thought would be sold off and putting many of the companies it has recently acquired–including its pricey Bebo social networking site–in a separate ventures unit, which will try to attract outside investment.

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This is is just too cute to pass up. Apparently, some staffers at AOL are using a teeny-weeny cartoon of new CEO Tim Armstrong as the icon on their instant messaging program.

Since he got the job, the big version of Armstrong has been busy making the rounds, even though he does not officially start until April 7.

He’s been talking up many current and former AOLers–many from its glory days–to learn as much as he can about what he needs to do to force the once-mighty online icon back to relevance.

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Let’s just say the firing of AOL CEO Randy Falco and President Ron Grant was not exactly expected–even if everyone thought it should happen–within the high ranks of the troubled online unit, until Time Warner CEO Jeff Bewkes dropped the guillotine this afternoon in Manhattan.

And drop it he did, lopping off the pair of executives Bewkes had installed himself. He replaced them with Tim Armstrong, Google’s head of ad sales, a man with a much brighter resume, for what is likely to be an attempt to spin out AOL now that merger options are moribund.

“It’s a shock to everyone how sudden it was,” said one exec, noting that AOL’s top execs had no idea this is coming today. “Everyone talked about when Bewkes was going to run out of patience with Randy and Ron all the time, but no one knew it was coming now, since it had taken so long.”

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