If MSFT and Yahoo could not beat Google on their own what makes MSFT think they can do it together. Sure it might help some but MSFT owns 90% of world desktops and can't beat Google.
"Yahoo doesn't bring much to Microsoft that the company doesn't already have. Both companies are leaders in display advertising and e-mail. We expect Google to continue to scrape away share in these areas over the next several years. We'd like to have seen Microsoft made "big, bold bets" (to use Ballmer's words) in areas that are likely to be big in 2-3 years on the Internet, instead of buying the former leader in the market." -- Walter Pritchard of Cowen & Co.
There are potentially big synergies in their computing infrastructure (servers), as they mention in this conference call (http://www.microsoft.com/presspass/press/2008/feb08/02-01Transcript.mspx). Good infrastructure is what lets google give out GBs of storage like candy to all the GMail accounts, photo accounts, web pages they host, etc... And it keeps search results coming up fast. Yahoo and Microsoft have their own infrastructure that they each need to use to do similar similar things; together they would cut out the redundancy and have a larger quantity of sheer computing power than they do apart.