Yesterday, BoomTown wrote about the status of the regulatory approval for the Microsoft-Yahoo search and online advertising pact.

While none of the key constituencies wanted to comment or make predictions about the outcome of the government scrutiny, most seem to agree that the MicroHoo partnership is more likely to be approved than not.

One of the few vocal critics of the deal, though, is Jeffrey Chester, the executive director of the Center for Digital Democracy, a public interest group.

CDD, along with several other consumer groups, recently sent a letter to the Justice Department’s antitrust head, Christine Varney, expressing concern about the control and collection of consumer data in the deal.

CDD also has been querying Microsoft (MSFT) and Yahoo (YHOO) directly about the data collection and privacy implications of the deal, which is something the government should be doing.

So, to further get a glimpse into MicroHoo’s arguments, here is a set of important questions Chester asked then that were answered in a memo by the pair:

What specific data collection, interactive ad technologies and targeting applications will be used for search under the 10 year deal?

Today, Yahoo! collects data about Yahoo! visitors to our search product and uses that information to deliver products and to customize advertising and content, among other purposes described in its Privacy Policy. Microsoft and Yahoo! have each adopted industry-leading privacy practices with respect to search. For instance, under Yahoo!’s global data retention policy, Yahoo! anonymizes user log data within 90 days with limited exceptions for fraud, security and legal obligations. For search specifically, Yahoo! will convey certain data to Microsoft to fulfill a user’s search request. This includes the query and the IP address. Microsoft will anonymize this data sent to it by Yahoo! in accordance with Yahoo!’s announced data retention policies. Microsoft is only permitted to use search data that it obtains under the deal to operate and improve its search services and for no other purpose.

Will Yahoo’s behavioral targeting technologies for search still be used?

Yahoo! does not currently employ behavioral targeting in search. [Ed. note: Not completely true; see press release from Yahoo here on new targeting capabilities.]

Will any of Yahoo’s targeting apparatus be incorporated in any way with Microsoft Advertising, including with Bing?

No. This deal is limited to search, and as noted above, Yahoo! does not employ behavioral targeting in search.

Will search ads be sold by either Yahoo or Microsoft that provide for multimedia results, such as video?

Video advertising is still a small and growing area and as such, it’s impossible to predict what video ads in any form, including what a potential video search ad, could look like several years from now.

How may this deal affect the Yahoo! Newspaper Consortium?

The partnership Yahoo! has with the newspapers is broad and includes everything from content distribution, advertising cross sales, and technology platform development, to the display of Y! sponsored search listings on the newspapers’ own Web sites. Yahoo! Does not see the Microsoft deal as having an immediate impact on its newspaper consortium dealings. However, by combining its platform with Microsoft’s, Yahoo! and Microsoft will be in a position to offer the Newspaper Consortium and other web publishers more competitive bids for search syndication deals than either company can offer separately.

What ad research and development will be shared or done in common?

It is premature to speculate about the exact research that will be done, but the increased scale that will result from this search deal is expected to significantly enhance the ability to conduct meaningful research in a timely manner.

What rationale was used to embrace the 3 month data retention time? Why isn’t a shorter retention time adopted?

Yahoo! did an extensive analysis and review of all our data systems globally in 2008. Yahoo! arrived at 90 days retention as the right timeframe for most of its log file data that allows it to deliver the industry-leading products and services its users expect from them, but that also minimizes the duration of time Yahoo! holds data in identifiable form. It’s important to note that some of Yahoo!’s log file systems retain identifiable data for less than 90 days but none will hold data longer except for a limited number of specific systems dedicated to fraud and abuse and to meet legal obligations.

How do you envision Yahoo remaining viable when it no longer has a meaningful independent search service, given the need to have a coordinated search/display environment for digital marketing?

Future growth in online marketing will come from shifting spend from offline advertising to the online world. Offline advertising spend is disproportionately held by the largest advertisers and they control the vast majority of ad spend. Yahoo! has the leading position in branded advertising and Yahoo! also serves the needs for the growing market of performance advertising. So this deal with Microsoft enables Yahoo! to deliver a fully integrated solution that meets marketers’ needs at scale. Through this deal, Yahoo! retains a revenue stream in search without incurring the costs of developing a search platform or engine. Yahoo! will get paid an 88% TAC rate while eliminating significant expenses, enabling Yahoo! to invest more heavily in other areas of focus: amazing audience properties, web products, enhanced display advertising capabilities, and fantastic mobile experiences.

With upward of two-thirds of the search market, depending on what survey you use, one would not imagine that Google would worry too much about any kind of hookup of Microsoft and Yahoo.

Think again.

While several sources at Google (GOOG), even off the record, have professed to me that they are not that worried about any search and online advertising deal the pair have finally struck, others admit that a more robust rival will force the company to compete and innovate more aggressively.

“We take nothing for granted, because anyone can make a comeback,” said one person at Google, who points to Microsoft’s laudable efforts with its Bing search service. “Especially with Microsoft’s deep pockets and Yahoo’s talent in the advertising market.”

Sources close to the situation said Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

“Is Google siccing the dogs on this deal?” asked one person familiar with Google’s thinking. “Or will it wait for regulators to cast scrutiny on a deal that drops the number of competitors from three to two?”

Still, having three in the market has not been enough to lift the share of Yahoo or Microsoft very much in comparison to Google over the last several years.

According to a comScore (SCOR) report for June, for example, even combined, Microsoft (MSFT) and Yahoo (YHOO) have a share that is less than half that enjoyed by Google.

Microsoft accounted for 8.4 percent of the search market in the month, with Yahoo clocking in at 20 percent. Google grabbed the lion’s share at 65 percent.

And that dominance means a financial windfall–as volume means more queries means better search ads means better relevance in an ever-virtuous and very lucrative cycle.

It is a cycle Google would like to keep intact, so much so that it made what turned out to be a very risky move to block Microsoft when it was trying to take over Yahoo last year.

Regulators ended up raising federal eyebrows about the proposed Yahoo-Google search deal, which was less sweeping than the Micosoft-Yahoo one announced today.

Google dumped Yahoo in the end–although not before the company found itself front and center on antitrust radar screens.

And there it has remained, with Christine Varney, assistant attorney general for the Antitrust Division of the United States Department of Justice, having become Google’s most pointed critic.

She should be, given the Silicon Valley-born Yahoogle idea was an appalling reach by Google, as I wrote last April:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.

Anti-competitiveness would likely be Google’s first arrow in what will surely be an attempt to slow down, if not block, the deal.

And while advertisers are more disposed to have a stronger No. 2 player to counter Google’s growing power, the company might use the opportunity to shave the sharp edges of its ever-scarier reputation.

In a conference call early this morning about their deal, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer tried to paint a picture of Google as a scary and dominating search giant.

But, as Google will surely offer up, if Microsoft and Yahoo combined is the underdog, it might not look like so much of a bully after all.

Please see this disclosure related to me and Google.

Since Varney’s confirmation in late April, the Department of Justice has seen a sort of Trustbuster renaissance. The DOJ has begun inquiring into potentially anticompetitive recruiting practices in Silicon Valley. It opened an investigation into the Google Books (GOOG) settlement. And now, the Department is scrutinizing cellphone exclusivity deals like the lucrative one between Apple (AAPL) and AT&T (T). Sources close to the DOJ tell The Wall Street Journal that the agency is probing such deals to see if they adversely restrict consumer choice or hamper competition.

The inquiry, which is in its very early stages, follows recent calls for the Federal Communications Commission to open a similar investigation, and it remains to be seen what, if anything, will come of it. For while exclusivity deals may undermine consumers, there’s little doubt that they benefit them as well. After all, AT&T’s iPhone deal with Apple scared the hell out the entire industry, forcing innovations in handsets and networks alike. Were it not for that deal, we might not be seeing the network improvements now occurring–the deployment of high-speed downlink packet access and long-term evolution, or LTE, networks, for example. And we almost certainly wouldn’t have devices like the Palm (PALM) Pre and the BlackBerry Storm.

Since Varney’s confirmation in late April, the Department of Justice has seen a sort of Trustbuster renaissance. The DOJ has begun inquiring into potentially anticompetitive recruiting practices in Silicon Valley. It opened an investigation into the Google Books (GOOG) settlement. And now, the Department is scrutinizing cellphone exclusivity deals like the lucrative one between Apple (AAPL) and AT&T (T). Sources close to the DOJ tell The Wall Street Journal that the agency is probing such deals to see if they adversely restrict consumer choice or hamper competition.

The inquiry, which is in its very early stages, follows recent calls for the Federal Communications Commission to open a similar investigation, and it remains to be seen what, if anything, will come of it. For while exclusivity deals may undermine consumers, there’s little doubt that they benefit them as well. After all, AT&T’s iPhone deal with Apple scared the hell out the entire industry, forcing innovations in handsets and networks alike. Were it not for that deal, we might not be seeing the network improvements now occurring–the deployment of high-speed downlink packet access and long-term evolution, or LTE, networks, for example. And we almost certainly wouldn’t have devices like the Palm (PALM) Pre and the BlackBerry Storm.

Indeed it could. Good luck proving it, though. Finding hard evidence that some of the nation’s largest tech firms have secretly negotiated agreements not to hire away each other’s top talent isn’t going to be easy. I can’t imagine there’s a paper trail of collusive memos between Steve Jobs, Eric Schmidt, Carol Bartz and Arthur Levinson. Then again, there’s no telling what a DOJ fishing expedition might turn up.