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.

The final board is likely to have about 10 members, and up to a dozen.

At least one of those seats will go to CEO Tim Armstrong, with one or two more claimed by its current corporate owner, Time Warner (TWX).

AOL and Time Warner made their own wish list of potential directors earlier this year, but some people are also lobbying the company to join the board.

BoomTown is working on discovering all those names, but sources added that the candidates being looked at are a mix of personalities culled from the media, advertising and Web worlds.

Among the key attributes: More presumably fast-forward and innovative Silicon Valley types that can help burnish AOL’s tarnished tech cred.

Here are some of my picks:

Facebook COO Sheryl Sandberg, Guitar Hero CEO Dan Rosensweig, WordPress founder Matt Mullenweg (actually, AOL should buy the start-up), eBay (EBAY) CEO John Donahoe, LinkedIn Chairman Reid Hoffman or CEO Jeff Weiner, Juniper Networks (JNPR) CEO Kevin Johnson, Netflix (NFLX) CEO Reed Hastings, and former AOL iconic exec Ted Leonsis.

And, just for fun, News Corp. (NWS) digital don (and ousted former AOL head) Jon Miller or former Yahoo President Sue Decker.

(I might also add former AOL exec, Netscape co-founder and all-around entrepreneur Marc Andreessen, but if he joins another tech/Web board, he is going to get splinters.)

That’s because Armstrong has set a strategy centered around the turbocharging of online content, powered by a more flexible platform and paid for by goosing AOL’s graphical advertising business.

This puts the online icon–once a powerhouse and now not so much, having operated inside Time Warner since its merger early in this decade–in more serious competition with Yahoo (YHOO).

Yahoo now dominates content on the Web, with powerful news, sports and finance sites, and has recently been trying to reinvigorate its brand. This week, it launched a new marketing campaign with the motto, “It’s Y!ou.”

Yahoo also recently struck a search technology and advertising partnership with Microsoft (MSFT), which has now aimed its efforts at AOL.

According to sources, Microsoft execs have been aggressively courting AOL to switch its search business from Google (GOOG).

The search behemoth has long been AOL’s partner in what sources at both companies said has been a productive and lucrative relationship.

Armstrong is also a former top exec at Google, which many at the company hope will further cement its chances.

And while the renewal of that deal does not officially need to be struck until late next year, sources add that Google has already prepared and offered what it considers an attractive new deal for AOL.

But, much to Google’s chagrin, with a focus on the spinoff and preparations for some more cost-cutting in the months ahead, AOL has decided not to accept it yet and is not likely to anytime soon.

While hedging the situation in a recent video interview with MediaMemo’s Peter Kafka, Armstrong has also recently met with Microsoft execs, sources said, who have discussed a number of partnership options with him, including a tighter relationship with its MSN content properties.

“There’s no need to rush, especially since there is already a lot on AOL’s plate,” said one source close to the situation. “And, since it has options, AOL is going to take time considering them.”

(For more on Armstrong’s thinking, here’s a link to another video interview I did with Armstrong while both of us were in Germany today, in which he talked about the ad market and AOL’s strategy, but was cagey about being more specific.)

Please see this disclosure related to me and Google.

Jim Bankoff–the well-regarded former AOL exec who runs an online sports news network called SB Nation–has nabbed $7 million in funding from investors to grow the company, including Comcast Interactive Capital, said sources.

There was also a Securities and Exchange Commission document filed on the transaction today, under the name Sportsblogs Inc., which you can see here.

The SEC filing noted that the money invested was $7.95 million. But sources said that the nearly million-dollar difference is for giving cash to early employees and founders and will not be used to fund SB Nation.

People familiar with the situation said SB Nation’s post-investment valuation, after this second round, will be $30 million and also include previous investors, such as Accel Partners and Allen & Co.

Its first round–which also included several prominent angel investors, such as former AOL exec Ted Leonsis and LinkedIn CEO Jeff Weiner–was $5 million.

SB Nation has used that investment to grow like gangbusters over the last year, especially since Bankoff arrived last fall as its chairman and CEO.

Depending on which survey service you reference, the site has between four and seven million unique visitors a month.

It has done distribution deals with Internet giants like Yahoo (YHOO) to goose that growth.

While it has been around since 2003, founded by DailyKos’s Markos Moulitsas and others, the Washington, D.C.-based start-up has been aiming more at the sweet spot of local sports pages, especially as newspapers have become weaker.

SB Nation also covers national sports, using a community network of blogs, analysis and news.

Comcast Interactive Capital, which is the venture arm of Comcast (CMCSA), will also get a board seat for David Zilberman.

Bankoff (pictured here) was a longtime AOL exec, ultimately in charge of programming and products there. He worked on such products as TMZ.com, Moviefone, MapQuest and Netscape, as well as its AIM and ICQ messaging offerings.

After he left the Time Warner (TWX) online unit, he became a senior adviser to Providence Equity Partners. Bankoff still has that role, but has been working full-time at SB Nation for a year.

That was fast.

Longtime–well, five years, which is a dog’s age at the search giant–Google sales exec Dennis Woodside (pictured here) will become VP, Americas Operations, replacing outgoing exec Tim Armstrong, who was named chairman and CEO of Time Warner (TWX) online unit AOL last week.

Woodside, 40, will start in the next few weeks, said Google (GOOG) in an internal communication about the appointment, as Armstrong transitions from Google to AOL. It is the key advertising sales job at Google.

Armstrong has already been hard at work at AOL, in fact, leading an employee rally today at its former HQ in Dulles, Viriginia, which included former AOL execs Steve Case and Ted Leonsis.

(And he will hold a similar meeting at AOL’s New York office tomorrow, BoomTown has been told. But let’s hope he does not roll out, say, former Time Warner CEO Jerry Levin, which would be taking this old-home-week stuff too far!)

While Woodside is a well-known exec within Google, his name was not as prominent in the speculation about which internal Googler would be named by CEO Eric Schmidt to replace the well-known Armstrong.

Wrote MediaMemo’s Peter Kafka last week, for example, when the Armstrong departure was announced:

“According to a (very informal) flash poll of Googlers, ex-Googlers and Google competitors I conducted last night, the answer should be obvious: David Rosenblatt, the former Doubleclick CEO, who now runs Google’s display business.”

Woodside will also have a slightly lesser title than Armstrong, who was a corporate SVP, was president of the America Operations and was also on Google’s powerful operating committee.

But that’s part of the changes, mentioned in a long statement by even bigger sales boss Omid Kordestani, SVP, Global Sales & Business Development, to whom Woodside will report (the key graph is the last one, although the golf dig is funny):

In the five and a half years that Dennis has been at Google (that’s over half our company’s lifetime) he’s brought incredible integrity and entrepreneurialism to everything he’s done. I remember Dennis setting off from Mountain View in 2005, a year and a half after he joined, to start our direct sales operations in Eastern Europe, which he quickly transformed into a substantial part of our business. He also set up our Inside Sales Operations in Dublin – again building it from scratch. In September 2006, he became our Vice President for the UK, Ireland and Benelux where he’s helped to create a first class team as well as establish very positive relationships with our big partners on both the advertiser and agency side, including 02, Marks & Spencer, Amazon and Omnicom.

Ever since I met Dennis in 2003, I have been impressed by his combination of entrepreneurialism and operational excellence. He’s never afraid to try new things and always ready to roll up his sleeves and pitch in–whether it means moving his desk to sit with the UK DSO team to see the operations first hand, or being the customers’ advocate internally to help product and engineering better understand market trends. Outside work he loves to do triathlons–though I would only recommend training with him if you don’t mind being out-run (if you are looking to beat him, try golf).

While we are all sorry to see Tim move on, change always brings new opportunities. We believe it’s now time not just to roll-out globally the best practices from the different regional sales teams–the Americas, EMEA and Asia Pacific–but also to tailor our business strategies more closely to the different situations we face in different countries (more mature versus less mature markets).

As BoomTown reported earlier today, AOL was abuzz with the rumors that former execs from the online service’s glory days, including still controversial former CEO Steve Case (pictured here), might make an appearance at a huge staff pep rally called by its new CEO Tim Armstrong.

And so Case did show up in front of a cheering crowd this morning, along with former AOL vice chairman Ted Leonsis.

Considering that many at Time Warner (TWX), which owns AOL, still harbor resentment towards Case about the disastrous merger between it and AOL a half-decade ago, the move is groundbreaking for the troubled online service and perhaps a sign that it is finally time to move forward.

In related news, Sasquatch will appear on the Time Warner-owned CNN’s “Larry King Live” show tonight.

The appearance by Case took place on AOL’s former HQ in Dulles, Virginia, on the tented lawn of the sprawling campus for the company, which only a decade ago was the dominant online powerhouse.

The event was broadcast to the AOL empire worldwide, reaching thousands of employees, and included all of AOL’s top execs and several from Time Warner, such as General Counsel Paul Cappuccio and CFO John Martin.

Leonsis, who gave a “lucky” green tie to Armstrong, engendered cheers as he spoke of the importance of change.

But it was Case’s entry that was a shock to the standing-room only audience of 1,000. He told the crowd that he would be a “cheerleader on the sidelines” for AOL.

Both Case and Leonsis talked about putting the past behind the service–and there is a lot of past to put behind, I might add, between AOL and the media giant–and were very supportive of Armstrong.

Armstrong, who was a key advertising exec at Google (GOOG), made the point of joking that Case and Leonsis were “on the payroll” at AOL again.

Armstrong focused mostly on AOL products, rather than its troubled history, employee morale and the importance of reviving the famous but tarnished brand.

And to get AOLers jazzed again about reviving the service, Armstrong asked rhetorically: “Are you committed to putting America back online?”

As soon as he got his new job last week, new AOL Chairman and CEO Tim Armstrong sent out a rather hopeful email to the troops–his first communication as the latest leader of the ragtag online service.

“I’m really looking forward to seeing you and would love to hear your thoughts and suggestions,” wrote the former Google (GOOG) exec Friday (who alarmingly kind of resembles this Elvis image), “on how to make AOL and its sister properties the most powerful brands on the Internet.”

Well, one can hope!

To goose that dream, although he still does not officially start in the job until April 7, Armstrong is also addressing all the troops tomorrow at 11 am EST and has chosen to do so from, of all places, AOL’s old center of power in Dulles, Virginia.

AOL staffers I spoke to also hope most of all that Armstrong will quickly and transparently lay out plans for a spin-out of the Time Warner (TWX) online unit from the media conglomerate, where it has languished for years.

“Armstrong would not have taken the job if the plans for a spin out of AOL were not in place and it’s in everyone’s interests to signal that it’s a go right away,” said one source close to the situation. “The only catch is the poor economy, but even that should not prevent Time Warner from doing what’s right to finally fix AOL.”

And sources said Armstrong could further up the ante tomorrow and help raise the layoff-weary morale by having some former AOL execs from its glory days as the top online player in person at the event.

Several sources said one exec most likely to make an appearance is Ted Leonsis (pictured here), one of AOL’s most colorful top early execs and a longtime inspirational figure within its ranks.

Unlike most AOL execs from those days, many of whom were eventually run out on a rail, Leonsis also stayed on through its disastrous merger with Time Warner and beyond.

But, like all of the Dulles complex–which was once the bustling worldwide HQ for AOL–Leonsis finally left the company, after a falling out with the management regime that Armstrong just hipchecked out of power. He is now AOL’s vice chairman emeritus.

Both CEO Randy Falco and President Ron Grant moved AOL’s locus largely to New York, and minimized the staff and influence at Dulles, where most of AOL’s products have been made since its origins in the early 1990s.

“It’s a smart move to go to [the Dulles staff] directly first…the last regime pretty much shut them out…and that created bitterness, when we need to be unified,” wrote one AOL insider to me in an email.

(Sidenote: As the AOL beat reporter at the Washington Post back then, I actually went with then-PR head Jean Case to look over what became the Dulles facility, to see if it would be a good place to expand to; previously, AOL was located in nearby Vienna, behind a car dealership.)

A Leonsis visit at AOL will be like old home week, although some are hoping too that former AOL CEO Steve Case could also make an appearance. He and Leonsis still make online investments together.

But that might still be deeply controversial within Time Warner, where Case and also former Time Warner CEO Jerry Levin are widely blamed for situation that the company found itself in when the Web 1.0 bubble burst and AOL’s once vaunted valuation collapsed.

Although Case and Time Warner CEO Jeff Bewkes have since moved on, bygones have not been bygones within Time Warner.

And, while it is often denied by top execs, AOL has suffered because of ill-hidden grudges, which have partly prevented it from being revived, even as other Internet giants have been born in the interim.

Ironically, many of the current crop of shooting stars owe a lot to the pioneering and innovative AOL products, including: its AIM and ICQ instant messaging services, which echo an early version of Twitter; the “Buddy List,” which was all about friending; and its deep social networking roots, with chat rooms and profiles that were the Facebook of its day.

The question for Armstrong is: Can AOL go home again?

In a move to dramatically increase its traffic and give it more tools to offer publishers, Clearspring Technologies said it will acquire AddThis, the top bookmarking and content-sharing tool on the Web.

As with many social-networking start-ups, whether this disparate traffic can be easily translated into a reliable revenue-generating business remains to be seen.

The McLean, Va.-based Clearspring–one of several widget networks seeking to connect publishers and advertisers with social tools by helping them embed small pieces of content across the Web and monetize that content–would not disclose the price it paid for the Princeton, N.J.-based AddThis.

My guess: A few million dollars in cash and maybe more in some kind of stock swap.

What exactly is Clearspring getting for this?

For starters, a tiny icon with a lot of popularity to help it toward its goal of being the universal sharing standard in the new socially-networked Web paradigm.

Clearspring claims the pair together will reach 20 billion views per month and more than 200 million unique visitors, noting it would now have a “worldwide audience comparable to the seventh largest Web property.”

While adding up such piecemeal traffic is not quite the same to advertisers as a major central Web site like Yahoo (YHOO), for example, AddThis is the most used tool for sharing Web pages through email or from Web site to Web site.

Its main competitors are ShareThis and Yahoo’s Del.icio.us, even though it has only a handful of employees.

Of course, that viral success around universal sharing might not mean massive revenue generation, even if it is a popular consumer tool.

But Ted Leonsis, chairman of the board at Clearspring, and CEO Hooman Radfar said revenue would come via advertising and, eventually, valuable data analytics the services collect about Web behavior.

Currently, said Leonsis, AddThis has negligible revenue and Clearspring has about $10 million in annual sales. Neither is currently profitable.

Nonetheless, Radfar said, “AddThis is the biggest small thing on the Web,” referring to its tiny icon that expands to offer users a choice of Internet sharing services and updating tools to a variety of social networks.

And indeed, AddThis icons are widespread across the Web, seen mostly at the bottom of content items on big sites like Time.com and MySpace.

While some question whether a big business can be created through such a far-flung network, Leonsis–one of the early execs at AOL in its glory days–said it was how the Web is evolving.

“If you said to me 10 years ago that you were going to be successful by sending people away from your site, I would have said you were crazy,” said Leonsis. “But that is what the Web is about now, and having a central network that can track this is important for advertisers.”

Well, we’ll see about that, but Clearspring certainly has a lot of money to try.

The company has received more than $35 million in funding since it was founded in 2004. Investors include former AOL head Steve Case, as well as the venture firm New Enterprise Associates.

Clearspring has about 100 employees.

Leonsis is best known as the man who put the oomph into AOL during its glory days in the last century, when he joined CEO Steve Case in 1993 to grow the company into a behemoth that was able to essentially take over media giant Time Warner (TWX) in 2000.

That pairing did not go so well, as time did end up telling, and most of AOL’s senior ranks were gone from the company quickly.

That is, except for Leonsis, who stayed around AOL until the end of 2006 when he left the company to focus on his sports investments (See an interview with him about his Washington Capitals hockey team in The Wall Street Journal over the weekend here).

Leonsis has also recently teamed up with Case again to take on PayPal and the credit card industry–that shouldn’t be that hard at all!–with RevolutionMoney.

He talks about that venture and more, including the end of portals, the rise of distributed networks, the need for a new online ad paradigm and how techies need to focus more on “happiness and the quality of life.”

Yeah, that.

Here’s the video, in which Leonsis did not talk about the Yahoo (YHOO) deal, as this video was shot before talks between Yahoo and AOL heated up:

As expected, from a story we broke in BoomTown more than a week ago, AOL confirmed it has bought the Israeli content-targeting ad network Quigo.

The sale price, said sources, was a lofty $300 million, around what Yahoo paid for data analytics ad network BlueLithium in September.

Well, it’s probably a good thing for AOL as it tries to turn itself from the onetime online digital home for consumers to what amounts to a glorified ad network.

That’s probably a good idea, given that the service has lost about one-third of its paying subscribers this year, which is no surprise after it went free. AOL now has just over 10 million, but is banking less on them than on selling ads all over the Web for its future.

Still, as sites like Facebook and others add users to their services, it is also more than a little depressing to me, given AOL’s history of pioneering the idea of a robust Internet community, where users created what former AOL top exec Ted Leonsis used to call a “permanent online presence.”

At the time of the merger between AOL and Time Warner at the turn of the century, AOL had more than 30 million such users, an audience that was bound to decline, given the lack of ability to take advantage of many opportunities for the company over the years.

I have always likened Time Warner’s handling of its AOL subsidiary–which I think comes a bit from its lingering corporate rage over the disastrous merger–to watching someone fall down stairs very slowly and deliberately.

At first you feel bad, and then you’re simply annoyed at the sheer waste of a once-great brand.

For example, it never built an ad network of its own (although former CEO Jon Miller’s purchase of Advertising.com was a lifesaver); it never spun the service off when it could have benefited from being on its own in terms of innovation; and it never made the kind of key acquisitions that would have kept its features fresh for users and prevented an exodus.

In my second of two books about AOL, called “There Must Be a Pony in Here Somewhere,” I jokingly referred to Dick Parsons, who recently stepped down as CEO, as a “noncarbonated beverage,” whose greatest legacy at Time Warner will doubtlessly be steadying the situation at the company after the merger mess.

Well, that’s been a good thing, of course, but it has also meant a stultifying recent record for AOL in years that have seen a really substantive boom in the Internet space.

In fact, the only real corporate focus thus far seems to be on jobs cuts, which is fine, but not exactly what I would call a vision for the future.

Nonetheless, in his new job as Time Warner CEO, Jeff Bewkes (pictured here) still has a lot of opportunity going forward. The ad network is a good idea, as I said, but AOL faces a lot of competition in the arena from companies like Google, Yahoo and now Facebook and MySpace. And no slackers here.

And it is encouraging when AOL invests in interesting subsidiaries like Truveo and UserPlane, as well as holding a piece of content sites like TMZ.com.

Why not more focus on drastically improving its email and communications tools? Why doesn’t AOL double down in the fast-growing mobile market? And it still has great assets in pieces it owns like ICQ.

Even more interesting would be a spinoff of AOL or even a sale to a Yahoo or Microsoft, creating a more powerful entity in which Time Warner could own a big stake.

Incredibly, after horses that have left the barn at AOL, there is a lot AOL can be going forward.

The question is: Does Bewkes have some fizz in him to do it?

As you will see, it is quite the Bubblefest, with all sorts of geeky bonhomie and aspiring hopefulness of also landing a $15 billion valuation, as Facebook founder Mark Zuckerberg noted he was about to do onstage yesterday.

Other luminaries onstage yesterday included Google exec Marissa Mayer, Nokia’s Anssi Vanjoki, former AOL exec Ted Leonsis and super-VC Mike Moritz. Today’s slate: Microsoft’s Steve Ballmer, eBay’s Meg Whitman, Philippe Dauman of Viacom and other various and sundry Web poo-bahs.

Of course, most of the action–as always–takes place in the halls of the Palace Hotel, where the schmooze factor is always ratcheted up to 11. There’s nothing a bunch of nerds likes to do more than debate each other over code and funding and which start-up is about to tank (not theirs!).

Here’s a video of the scene from Day 1:

When I saw the numbers, part of its parent Time Warner’s first-quarter earnings announced Wednesday, it was hard not to remember the days when former AOL execs like Steve Case and Bob Pittman crowed constantly about the subscriber growth at AOL and repeated ad nauseam the most annoying but effective mantra: “So Easy to Use, No Wonder It’s No. 1!”

Somehow, “It’s No. 3!” just does not sound the same.

And who can forget the ubiquitous AOL disks that blanketed the world (even showing up in orders of flash-frozen Omaha Steaks), which was the single boldest and, well, nuttiest marketing scheme in Web history.

Now, I know AOL has been strategically shifting its business away from the access market to the ad-supported model for its various offerings, like email, services and content, that it started giving away for free and has added millions of free subscribers (many of whom used to pay).

And the quarterly results showed its strategy has been a good move (and all credit for that should go to former AOL head Jonathan Miller, who was shabbily forced out of AOL last year after working hard to improve the service under difficult and stressful pressures from Time Warner’s top brass). Ad revenue rose an impressive 40 percent from the previous year, even though overall revenue fell from the loss of the access fees that once paid for all those private executive planes in the old AOL.

AOL head Randy Falco was already touting AOL’s new resurgence a few weeks ago when the former NBC exec hosted major advertisers at the gleaming Time Warner Center in NYC to show off new interactive programming and features in an event he called a “coming-out party.” It was heavy on content and flashy tie-ins with television shows and movies, such as a renewed deal with reality-show kingpin Mark Burnett. From all signs, such fare will be heavier still in the year ahead, with an overdose of razzle-dazzle marketing noise.

I can’t say I don’t kind of like the ideas. Burnett’s combo trivia/treasure-hunt game, “Gold Rush,” was fun, and “Ye Olde Shrek the Third Royal Tournament” (games based on the new movies) will probably keep the kids happy. And, on a pure hokey scale, another show based on checking the serial numbers on your cash to win a million dollars (”Million Dollar Bill”) and one that lets users pick and control a real-life group of “Gilligan’s Island” contestants (”iLand”) scores off the charts.

This butts-in-the-seats approach is no surprise from Falco, whose career is steeped with television experience that focuses on churning out the hits and big audiences for content. And yet, while its ad-sales team, under longtime AOLer Michael Kelly (how he hung on from the past regime makes him my first choice for “iLand”), deserves kudos, one wonders how AOL can keep those hits coming. First, there is a lot out there on the Net to see, and it is ever easier to find it.

And, more important, it is hard to create a true and lasting Internet hit, rather than just a series of what are probably expensive traffic spikes. It is no coincidence that there has never really been one.

Falco might ask Vice Chairman Ted Leonsis, another lifer within AOL and really its old heart and soul. Over the course of his long and colorful career, he has tried mightily to make a Net entertainment hit–he even made a very early deal with the late, legendary NBC programmer Brandon Tartikoff–and encountered a lot of near-misses and flat-out failures more than successes. Not that the ebullient Leonsis was ever defeated by this, and I think is still at it.

AOL has managed to garner one great hit, TMZ.com, the now-popular gossip site–thanks to the troubled hijinks of Britney Spears, Alec Baldwin, Lindsay Lohan and Mel Gibson–that it launched with Telepictures Productions in late 2005 (and credit for that goes to another ex-AOLer, Jim Bankoff, who was also badly treated).

I chronicled a lot of these dashed and pricey efforts to create big entertainment offerings in two books I wrote about AOL in the 1990s, called “aol.com” (about the rise of AOL) and “There Must Be a Pony in Here Somewhere” (about the fall of the company after its ill-fated merger with Time Warner; cover shamelessly pictured here).

The latter title was from a story about a boy digging in a giant pile of manure, and that was his response when asked why, which was also an internal AOL mantra during the company’s many ups and downs. And today, it could also be what current execs might use to explain their quest to create a Web hit.

The fact of the matter is that the true hits of AOL have always been its easy-to-use services, such as AIM, email and Buddy Lists. I am hearing a lot from folks in these areas that Falco’s concentration on hit-making is troubling and takes focus away from AOL’s core strengths of making the Internet navigable and simple for the vast majority of users.

I would agree. And more on this disgruntlement inside AOL very soon.