While many would like to see Microsoft reignite its bid for Yahoo, and as much as even good reporters insinuated that its CEO Steve Ballmer (pictured here) said yesterday in an appearance that he was interested in reopening merger talks, the company will not and he is not.

While some are surmising that Ballmer is playing a little game of cat-and-mouse with Yahoo CEO Jerry Yang, I would say what happened yesterday was more a woeful misconstruing of what was said, combined with Ballmer’s tendency to be less than careful with his words.

Kind of like executive Tourette Syndrome.

Here is what is true, based on talking to numerous sources:

1) As was reported here a week ago, Microsoft (MSFT) has never stopped being interested in doing a search deal with Yahoo (YHOO). In fact, it is hoping Yahoo will consummate its deal with AOL.

Microsoft hopes its can then step in and grab the search business from Google, which has a search deal with AOL and is trying to complete a deal with Yahoo too.

Microsoft execs, sources said, think regulators will determine that the combined Yahoo and AOL will be too large a partner for Google (GOOG), due to its dominance over the market.

As you will see from the verbatim transcript below, a search deal, and not a larger one, was what Ballmer was referring to, when he said a deal made “sense economically.”

Just to underline that, a Microsoft spokesman said this, after Ballmer’s comments were reported as a larger interest in all of Yahoo: “Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo. There are no discussions between the companies.”

Believe it.

2.) And believe this: AOL and Yahoo are still in serious talks, which have accelerated over the last week. Execs from many levels of Yahoo are now in the process of meeting to determine how to integrate the companies.

This is the deal that is most likely to come first, if the pair can quicken the pace and be less foot-draggy.

Price remains a big issue, of course, especially as the Wall Street meltdown has hit the stocks of both Yahoo and AOL owner, Time Warner (TWX).

Given the deeply worrying economic indicators that are more likely to hit the advertising businesses of AOL and Yahoo harder than most, both should realize they have zero time to act as if they have all the time in the world.

3.) If they do not act, Yahoo is in a very dicey situation. Reporting its third-quarter results next week, which will likely not to be as bad as expected, the potential for disaster is actually in the upcoming fourth quarter.

Yahoo’s low stock price leaves it vulnerable to a range of other buyers, especially private equity funds, which might buy it and cut it up, selling off the various parts.

This is not a good thing.

One thing that Ballmer said was correct; it makes much better sense for Yahoo and Microsoft to find some common ground and find a way to partner.

Frankly, another go at a merger should even be on the table–and that should be obvious to Ballmer.

Finally, here is the verbatim transcript of Ballmer at the Gartner ITXpo in Florida yesterday:

NEIL MCDONALD: So advertising and all that business model change that certainly has to be the driving force for why you were very interested in acquiring a company called Yahoo, whose stock we noticed has continued to drop. So we have to ask you if the acquisition made sense eight months ago, why wouldn’t it make even more sense now, now that the price would presumably be a lot lower?

STEVE BALLMER: Well, I don’t know if the price would be lower. We offered $33 not too long ago, and it’s $11-1/2 today, and so I don’t know what price might have really gotten the job done. It’s clear that Yahoo did not want to sell the company. It didn’t want to sell when we offered $33. You’ve got to believe they don’t want to–if they thought the company was worth more than $33 six months ago, they probably still think it’s worth at least $33 today. And so I think what we learned through that is, look, they want to remain independent. Perhaps there will continue to be opportunities to partner around search. We’re not in any discussions with them, but that was an offer we made after the acquisition had fallen through. We’ll see. I still think it would make sense economically for their shareholders and ours.

With Yahoo’s stock trading at a 52-week low of $11.37, how could Microsoft CEO Steve Ballmer fail to comment on the discrepancy between the company’s current share price and the spurned $33-a-share bid Microsoft made for Yahoo earlier this year?

Speaking at the Gartner ITXpo in Orlando, Fla., this morning, Ballmer said that a Microsoft (MSFT) acquisition of Yahoo (YHOO) or its search business would still “make sense economically” for shareholders at both companies. “We offered 33 bucks [for Yahoo] and it’s at $11 today,” Ballmer said. “It’s clear Yahoo didn’t want to sell. They probably still think it’s worth more than $33 a share. … Perhaps there will continue to remain opportunities to partner around search. We are not in any discussions with them. We’ll see. They want to remain independent. There are probably still opportunities around search. I think it would still make sense economically for their shareholders and ours.”

That remark spiked Yahoo’s shares as much as 17 percent, though there are no talks between the two companies at the moment and Microsoft CFO Chris Liddell recently described Yahoo as a “declining asset” and the chances of Microsoft acquiring it outright as “negligible.”

Said Microsoft spokesperson Frank Shaw, “Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo; there are no discussions between the companies.”

With Yahoo’s stock trading at a 52-week low of $11.37, how could Microsoft CEO Steve Ballmer fail to comment on the discrepancy between the company’s current share price and the spurned $33-a-share bid Microsoft made for Yahoo earlier this year?

Speaking at the Gartner ITXpo in Orlando, Fla., this morning, Ballmer said that a Microsoft (MSFT) acquisition of Yahoo (YHOO) or its search business would still “make sense economically” for shareholders at both companies. “We offered 33 bucks [for Yahoo] and it’s at $11 today,” Ballmer said. “It’s clear Yahoo didn’t want to sell. They probably still think it’s worth more than $33 a share. … Perhaps there will continue to remain opportunities to partner around search. We are not in any discussions with them. We’ll see. They want to remain independent. There are probably still opportunities around search. I think it would still make sense economically for their shareholders and ours.”

That remark spiked Yahoo’s shares as much as 17 percent, though there are no talks between the two companies at the moment and Microsoft CFO Chris Liddell recently described Yahoo as a “declining asset” and the chances of Microsoft acquiring it outright as “negligible.”

Said Microsoft spokesperson Frank Shaw, “Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo; there are no discussions between the companies.”