Microsoft digital head Qi Lu took to the stage at the Web 2.0 Summit conference this morning, where he confirmed a “strategic” deal with Facebook and Twitter to integrate real-time information into Microsoft’s Bing search service.

BoomTown broke the news of those deals earlier today.

Top Microsoft exec Yusuf Mehdi did a demo of the new tweet-powered search for Twitter; the Facebook integration is to come later.

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Meet Satya Nadella, the man in charge of search technology for the just-struck partnership with Yahoo.

How the search business of Microsoft evolves, improves and, most of all, out-innovates–especially in the face of heretofore withering competition from search behemoth Google–is going to be a big factor in the success of the deal with Yahoo.

In fact, Yahoo has essentially put its search technology eggs in Microsoft’s work-in-progress basket, which must make a series of innovative leaps, or else.

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While at Microsoft HQ last week, right after the online advertising and search deal with Yahoo was struck, BoomTown interviewed a passel of Microsoft execs, including Online Audience Business SVP Yusuf Mehdi, who has been a key player in the many–and mostly disastrous–attempts that the software giant has made to form some sort of alliance with Yahoo over the years.

While Wall Street threw raspberries at the Silicon Valley icon for the deal, Microsoft got kudos for grabbing a large piece of share that it could use in its ongoing battle with archrival Google.

In this video interview with me, Mehdi defended it as a “win-win”–what else is he going to say?–for both Yahoo and Microsoft.

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Unless there is some major glitch, there might finally be a search and online advertising deal struck between Yahoo and Microsoft at long last.

Top executives at Microsoft–including SVP of the Online Audience Business Group Yusuf Mehdi, search head Satya Nadella and top digital exec Qi Lu–have all flown down to Silicon Valley from their Redmond, Wash., HQ today to iron out the remaining issues.

If all goes well, the deal could be announced within the next week, sources said.

Said one person close to the situation, “It is down to the short strokes, for sure, it is just a question if we can finally close this.”

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Oh, they’re still talking. Except when they’re not. And, then, they are.

Such has been the course of discussions Yahoo and Microsoft continue to be engaged in about a possible partnership deal around search and online advertising.

“It runs hot, then cold, then hot, then who knows,” said one person close to the situation.

It’s kind of like a digital version of the romantic travails of Lindsay Lohan and Samantha Ronson, minus the paparazzi and screaming matches in trendy clubs.

Here’s an update of the talks.

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Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer 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 and Microsoft continued their talks, including Yahoo U.S. head Hilary Schneider and top Microsoft digital exec Yusuf Mehdi.

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Recently, BoomTown reported that talks between Microsoft and Yahoo had gotten “hot and heavy.”

That mood seems to be continuing, as many sources close to the situation on both sides said that the pair are coming ever closer to a search and advertising partnership deal.

“It’s meaningful,” said one source. “The fact that there is even progress and engagement, after so many failed attempts between us, says a lot.”

Indeed, there seems to be a lot of engagement between the two sides of late, and some sources think a deal could even be struck within the next few weeks.

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According to several sources, more restructuring is about to hit Microsoft’s online division as various departments are moved among and between its top execs, with changes to be announced as early as today.

While BoomTown is still gathering information, it looks like longtime Microsoft exec Yusuf Mehdi, who is now in charge of marketing, online audience business development and product management for MSN and the search properties, will get more added to his portfolio, including overall business development for the online properties.

Mehdi could eventually get purview over programming for MSN too, said several sources.

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BoomTown loves a good memo and here’s one that two of Microsoft’s top online execs, Yusuf Mehdi and Satya Nadella, sent out about the deal the tech giant signed with Dell and Verizon to distribute its search and other products.

Microsoft is opening its fat wallet to do such deal and try to best archrival Google.

Here’s the memo.

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With so many more ex-Yahoos out there now, BoomTown put out feelers to a range of them to ask whom they would like to run the company they no longer work for. After all, who better than to pick a new CEO than an ex? The response was swift and varied wildly, depending on which way the ex-Yahoo felt the company should go, from a basic turnaround expert to–drum roll, please–his digital Holiness, Steve Jobs of Apple. No kidding.

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Microsoft moved up its announcement of former Yahoo tech star Qi Lu as its digital head.

BoomTown reported on the selection this morning.

As part of the changes, Microsoft digital ad head Brian McAndrews, who had also wanted the job, is leaving.

Here’s the full release.

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Former Yahoo tech star Qi Lu is poised to take on the big job of being Microsoft’s top digital executive, according to several sources inside and outside the company.

The appointment could be announced as early as next Monday.

A variety of details is still being ironed out, including whether the well-regarded techie Lu will be “paired” with another executive at Microsoft with more general business experience.

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Here’s part of an internal memo BoomTown obtained about some small, but interesting, changes at Microsoft’s MSN unit, sent out by the GM of its Global Media Group, Greg Nelson, which is under the leadership of–well, frankly–a confusing panoply of people.

That’s why I have been haranguing Microsoft CEO Steve Ballmer for a little digital clarity, especially around its consumer digital businesses and brands.

Ballmer has been searching for an overall head of that business, and it will fall to the person he ultimately selects as digital head to figure out what to do next.

Until then, let’s rearrange some chairs!

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Yesterday, BoomTown opined that Microsoft was nearing a decision on who would become the head of its digital efforts.

And, according to several sources and some puzzling by me–if the deal can be sealed–I think that Microsoft CEO Steve Ballmer’s top choice is former Yahoo tech star Qi Lu.

If Ballmer manages to pull off the hire of Lu–on the heels of already grabbing another top Yahoo search exec, Sean Suchter, which I posted on yesterday–the aggressive exec could almost be bypassing a Yahoo search partnership he has long sought by sucking the talent right out of the place instead.

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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 shares 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 bid for all of Yahoo.

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

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