The tale has become a bit of an urban legend within the company for some, who point to it as part of the complex web of reasons the Internet portal cannot seem to accept a lesser price now.

(Microsoft’s original $44.6 billion unsolicited bid has dropped several billion dollars in value since it was revealed in February, due to a decline in the software giant’s stock.)

While I am not so sure that Yahoo is paralyzed by regret, such pricey possibilities from years past probably do have some weight today.

And, in fact, there is a continued and stubborn insistence on the part of Yahoo’s top brass and board that the company is worth a lot more–and I don’t believe it is simply a negotiating ploy to squeeze more dollars out of Microsoft.

“We’re that proverbial diamond in the rough right now,” said one person close to Yahoo.

Maybe so, but, as I wrote earlier this week and for a while now, Microsoft remains just as insistent that the price of such a jewel has declined from those supposed and heady 2006 prices.

Still, back in May of 2006 in an interview with the Financial Times, Semel denied that any substantive conversations were taking place with Microsoft about a takeover, saying the talks centered on Microsoft buying a stake in Yahoo’s search business.

Wrote the Times then: “‘Microsoft taking over Yahoo–that conversation has never come up,’ Mr. Semel said at a question and answer session organised by Syracuse University’s Newhouse School. ‘[We discussed] search, and Microsoft co-owning some of our search. I will not sell a piece of search–it is like selling your right arm while keeping your left. It does not make any sense.’”

Still, several people recently said Semel has since told them that Microsoft was indeed interested in the whole company and willing to pay a premium. In fact, many sources at Microsoft say today that it was indeed intent then on making serious overtures to combine the two to beat Google.

And because of lack of interest from Yahoo to merge, Microsoft decided to create its own search offering in place of a longtime deal it had had with Yahoo.

At the time, Semel thought that move a bad decision, as quoted by the Times: “My impartial advice to Microsoft is that you have no chance. The search business has been formed.”

Apparently not.

But to underscore Yahoo’s lack of regret at not taking that critical road diverging in the digital woods, here’s the great Edith Piaf singing an appropriate tune for the company: