With Google in the market for pretty much, well, everything, in the Web 2.0 space of late–using its fat stock price and copious cash reserves–it stands to reason that Microsoft would be in the same market too.

But multiple sources close to the situation said the software giant was caught short when Google (GOOG) grabbed mobile advertising start-up AdMob recently with a massive $750 million acquisition price.

Microsoft (MSFT) execs were similarly surprised when news emerged late last week that the search giant was offering more than $500 million for local search site Yelp, and were scrambling to figure out the best response, because both their MSN portal and their new Bing search service have been prominently emphasizing local recently.

That Google-Yelp deal seems to have gone off the rails for now.

Interestingly, Yelp insiders, several sources said, had considered Microsoft the only realistic spoiler–with both an interest in and the means for making such a play–even as they have openly scoffed at the idea of ever selling to Microsoft over the hipper and more copacetic Google.

In any case, maybe Microsoft will rise to the occasion now, taking advantage of the Silicon Valley-style breakdown between Google and Yelp.

But if the company’s recent history is any guide, it could just sit with a similarly large pile of cash on the sidelines, mulling its options.

It has certainly been a long mull for Microsoft, with no major acquisition in the digital space since the summer of 2008, when it bought Greenfield Online, an online market research and survey firm, for $486 million, as well as paying $100 million for the semantic search engine Powerset.

Microsoft also paid an undisclosed amount for a small interactive online gaming company called BigPark in May.

Of course, there was the little matter of that famously failed $44 billion bid for Yahoo (YHOO) that might have made it a bit wary, which was preceded by its $240 million investment in Facebook in the fall of 2007 at a $15 billion valuation.

But for the most part, Microsoft has been focusing on making its own product more innovative and competitive recently, especially with its laudable effort with Bing, which has seen small but promising results.

What’s most certain is that if Google keeps up its acquisition spree, there is certain to be a faceoff in Washington, D.C., with Microsoft more likely to try to quash Google’s recent series of aggressive moves by making a regulatory stink.

The company did so rather effectively after Google bought DoubleClick, delaying the closing of the deal significantly and engendering the ire of top Google execs, who have not forgotten Microsoft’s sharp-elbowed effort.

They might not have to forget it, because it appears that it’s not going to stop, according to some who have been briefed on Microsoft’s thinking.

“The notion being put forth is that Google is bidding an ‘antitrust’ premium on these properties, outbidding everyone else, so Microsoft is the only other possibility,” said one source. “There’s no doubt Microsoft will argue that if Google wins at this game, it should face significant regulatory hurdles.”

That kind of government review is what has already happened with AdMob.

And with Google in the crosshairs of publishers over a variety of content issues–with Microsoft putting itself out as a white knight to some media giants–expect more of the same going forward.

In other words, if you don’t bid, you block.

Greenfield said the all-cash deal values the company at about $486 million. The company also terminated its previous deal to be acquired by Quadrangle Group for $15.50 a share. Greenfield will pay Quadrangle a $5 million termination fee.

Microsoft said it will sell the assets of Greenfield’s Internet survey solutions unit to an unnamed financial buyer. Both deals are expected to close in the fourth quarter. Greenfield operates Ciao, a European shopping comparison and consumer review site.

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