According to sources close to the situation, Index Ventures and Michelangelo Volpi are out of the deal to buy Skype–and their lawsuit-loving nemeses, the founders of the Internet telephony service, are in.

Skype founders Niklas Zennström and Janus Friis had sued Index and partner Michelangelo Volpi via tech companies they control, Joltid and Joost.

The pair had already been in a legal battle over software licensing issues with eBay (EBAY), the company that had sold Skype to in 2005.

They then accused Index and Volpi, employing a reputation-bashing style, of using confidential information as part of a consortium bid to acquire a large chunk of Skype.

Volpi had been Joost’s CEO.

Volpi and Index fired back in court filings and both sides armed themselves with powerful PR guns.

Ironically, Index was only a small part of the group that won the deal to acquire Skype from eBay recently.

News of the serious settlement talks was reported earlier this week by GigaOm’s Om Malik.

The New York Times’s Brad Stone also added significantly to the story about the settlement today, noting the Skype founders would be getting a stake and that Index “is most likely withdrawing from the deal.”

Well, most likely now means certainly for Index, sources told me, and the London-based venture firm that bid for Skype has to bid that deal goodbye.

More details to come, but it’s sure proof that the legal system, such as it was used, works.

The tweens and twenty-somethings who flock to the site can still keep playing games there without paying. But the company wants to convince a few of them to start shelling out $5 a month for subscriptions that gives them access to bonus goodies and credits they can use for power-ups and other virtual goods. The credits will first be used on the site’s new “Hover Kart” game and will eventually be rolled out it to the rest of its 11-game portfolio.

Virtual goods + subscriptions + online games isn’t a new idea by any stretch. It’s really big in Asia, and there are several companies trying to port the model to the U.S. Some, most notably Activision Blizzard’s (ATVI) World of Warcraft and Disney’s (DIS) Club Penguin, are enjoying success on a large scale. I’m just noting OMGPOP’s foray for a couple reasons:

1) Gotta give the company credit for sticking to its guns, from an intellectual property perspective. The site has no problem taking games that have been successful for other people and offering refurbished versions of its own. “Blockles,” its first game, is a Tetris clone. And Hover Kart, its newest one, is an homage to Nintendo’s Mario Kart, which absconded with many of my hours in the mid-90s.

The folks at OMGPOP (and their backers, which include Twitter investor Spark Capital) think this is kosher because they’re not using the games’ trademarked names or characters–only their game play/mechanics (see: the Scrabble/Scrabulous/Lexulous imbroglio). But they’re already spending money defending a Tetris lawsuit, and it will be interesting to see what Nintendo’s legal team has to say about the new game.

2) Gotta give the company, and founder Charles Forman, credit for evolving. Two years ago, Forman was a Y Combinator graduate running a site called iminlikewithyou that was supposed to be some kind of flirting/dating/Facebook hybrid. It got glowing praise from the likes of Om Malik, but it was hard to see how it was going to amount to a business. So Forman changed direction and turned it into a game site.

Fast-forward to today and it’s still not clear if there’s a successful business yet–the site has sold a couple T-shirts, but that’s about it. But at least you can see how it might work. And compared to a lot of its Web 2.0 peers, that’s saying something.

Yesterday, several Flickr engineers posted news of their layoffs from the Yahoo photo-sharing unit on Twitter, which caused GigaOm’s Om Malik to notice that Flickr architect Cal Henderson (pictured here) was also no longer on its About page.

According to several sources I spoke to, Henderson was actually not laid off at Yahoo (YHOO), but is leaving to start a new company–in the social-gaming arena, I am told–with Flickr co-founder Stewart Butterfield.

He and several other of the original core development team for Flickr transitioned out or have been transitioning out for quite some time, sources said.

Henderson’s Web site, called iamcal.com, still says he is the head of engineering at Flickr.

Butterfield (pictured here), as well as another co-founder, Caterina Fake, left Yahoo last year. Yahoo had paid $35 million to acquire Flickr in 2005.

Fake joined another start-up, called Hunch, last summer as chief product officer. Hunch is an answers site and is now in beta testing.

While MySQL would be a small part of Oracle’s overall business, it’s a popular open-source database that competes with other Oracle offerings. The deal, writes Seeking Alpha’s Mike Butcher, “has massive implications for the future openness of Java and MySQL.”

“MySQL is clearly a big prize for Oracle,” writes Om Malik on GigaOm, who says that the acquisition takes out Oracle’s No. 1 threat.

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Is it just me or does the sudden prospect of venture capitalists–the very investors who fueled the Web 2.0 valuation insanity with their typically egregious overfunding of start-ups–lecturing about the bleak economy and the need to tighten belts seem just a tad ironic?

It’s kind of like Washington politicians who handed out-of-control bankers one deregulation after another in exchange for campaign donations now mounting their high horses and decrying Wall Street greed in the current economic meltdown.

And yet, just like that, Silicon Valley’s investors–who could spin you all the way to next Sunday about how Facebook was actually worth $15 billion, despite not having much revenue quite yet–are turning into penny-pinching accountant types.

As reported by Om Malik of GigaOm in a piece titled “Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble,” for example, Sequoia Capital–one of tech’s most powerful and successful VC firms–held a meeting where it told its portfolio companies that the downturn was quite serious and advised them to start cutting costs.

Apparently, there was even a picture of a gravestone with “R.I.P.: Good Times” displayed at the gathering, in case the start-ups did not get the sledgehammer message. (And here is an update on the meeting by Malik.)

The last time Sequoia did this was when the Web 1.0 bubble was popping in 2000.

The same communication was also sent out to entrepreneurs by angel investor Ron Conway then, and now yesterday again.

The typically jovial Conway (pictured here) sent out a grim email to the start-ups he is invested in, advising they lower their burn rate to get ready for the tough times ahead.

Wrote Conway: “Unfortunately history DOES repeat itself but I hope we can learn from history and prevent the turmoil from occurring again. The message is simple. Raising capital will be much more difficult now … the name of the game in this environment in some respects is survival–survival until conditions change.”

Now he tells us!

In all seriousness, these kinds of prescriptions should have been front and center when times were presumably good, especially after the first orgy of Internet frothiness ended with such a thud.

Instead, the all-trees-grow-to-heaven attitude, the massively inappropriate valuations, the revenue-what-revenue strategies have been pushed on entrepreneurs in this cycle by too many VCs, most of whom should have known better.

And, while it is right for Sequoia and Conway to sound the alarm, I expect all the VCs who touted loudly will now climb aboard this somber bandwagon.

Because, after handing over too much money to start-ups like drunken sailors on shore leave, it is apparently now Sunday morning and time for a little salvation.

But not completely, of course, since this is still an industry where the dreams of hitting it big never die.

After I jokingly called Conway “Oh voice of doom and gloom” after reading his email, he quickly wrote back: “NO WAY DOOM AND GLOOM. I think innovation in the Valley will continue to thrive and I will continue to invest.”

Of course, Conway will. It wouldn’t be Silicon Valley if he didn’t.

And to raise your spirits from these wet-blanket VCs, here’s a video of Mike Settle singing the classic “What Shall We Do With the Drunken Sailor”:

The third annual WordCamp San Francisco was held this weekend, bringing together WordPress users and developers to discuss the past, present and future of their favorite Web publishing platform. Since its humble beginnings as a fork of the b2\cafelog blog software in 2003, WordPress has grown to become one of the most popular blog publishing platforms. WordPress.com, the hosted version of WordPress, saw the creation of 2.3 million new blogs this year, with 35 million posts.

My history with WordPress goes back to when it first came on the scene in 2003. I was looking at third-party software to manage my personal Web site, which had outgrown the simple content management system I had written. I initially resisted using WordPress until version 1.5 was released in 2005. What pushed me over the top was the inclusion of static pages in the Strayhorn release. This allowed WordPress to be used as a full-blown CMS instead of just a simple blog platform. Over the next last years, WordPress’s CMS capabilities and versatility have grown to the point where it’s a great choice to power a simple blog, a community of blogs or even a corporate Web site. Walt Mossberg and Kara Swisher agree–after all, they chose WordPress to power All Things Digital.

Automattic, the folks behind WordPress, are hard at work this year improving the WordPress experience. As millions more people choose WordPress to power their Web sites, the importance of having automatic updates is becoming very evident. During his State of the Word Address, Matt Mullenweg, the lead developer and public face of WordPress, hinted at a future update mechanism (similar to Mac OS X Software Update or Mozilla FireFox) with which updates to WordPress Core, Plugins, and Themes can be applied in real-time without the user having to upload files or type arcane commands into a Terminal session.

Having been to the previous two WordCamps, I can say that Automattic and the volunteers did a fantastic job organizing the 2008 edition. The new space at the Mission Bay Conference Center was a great upgrade over the previous location. Still, a part of me misses seeing Matt sit in one of those thrones at the Swedish American Hall!

For more information and thoughts on WordCamp 2008 SF, check out the great coverage on Andrew Mager’s blog The Web Life on ZDNet. Finally, to find out more about upcoming WordCamps in your area, visit WordCamp Central.

Someone get a dose of Ritalin stat to the noisy but deeply misguided critics who took news of the huge number of downloads of apps for the Apple (AAPL) iPhone and immediately concluded it was just not good enough.

Thus, as reported today in The Wall Street Journal, 60 million downloads in 30 days–mostly for free apps, but with about $30 million in revenue, and a runway of three million more new iPhones out there too–is a chance to talk about how it all is just so unexciting and how the apps market is officially saturated?

Am I missing something here? One would assume that were these pundits pioneers, they would get to Ohio and declare that the going farther west held very little promise, thank you very much!

Wrote TechCrunch’s Erick Schonfeld:

The question is how many apps can one person really manage before becoming overwhelmed. While the initial impulse is to download as many apps as possible to try them out, there is a limit to how many apps you can juggle on your iPhone. It is not much different than a PC. You have tons of apps, but how many do you actually use on a regular basis? For most people, that number is probably no more than ten apps, and on a daily basis, maybe three or four, tops.”

Yes, that personal computer thing has been such a disappointment for us all and a real failure in spurring the creation of a plethora of multi-billion-dollar software makers, hasn’t it?

In actuality, while there is obviously going to be an initial period of frantic trying-out of apps and a fall-off of regular usage, the entire point is that a useful and important platform is being developed here.

Stlll, GigaOm’s Om Malik talked to new iPhone analytics company Pinch Media and managed to find lemons in the lemonade:

Using the caveat that only a few app makers were using the Pinch Analytics library, [Pinch's Founder Greg Yardley] pointed out that as per their data, the ratio of free downloads to paid downloads is at least 10 to 1. He also said that the pace of downloads is slowing, which is expected because the early rush is behind us. According to data collected by Pinch Media, on average, less than 20 percent of an application’s overall unique users return to an application each day. Yardley also pointed out that people are using the apps for just under five minutes at a time, on average. The majority only use the applications once per day; the average number of uses per day is around 1.2.

Looks like I am not the only one who is getting bored with some of the more blah apps. Phew!”

Of course, Malik and others will not like each and every app, but that is not exactly a surprise; nor should it be the focus.

As Apple CEO Steve Jobs correctly noted to The Journal:

“Phone differentiation used to be about radios and antennas and things like that. We think, going forward, the phone of the future will be differentiated by software.”

Exactly. This is less about the iPhone, than it is about all mobile phones, going forward.

But, because of the iPhone’s trailblazing, they will be easier to use, because of apps and multi-touch and a much richer multimedia experience.

That market will thus require a lot of apps, some of which will work and some of which will flop.

As I wrote about the popularity of the third-party apps and Apple’s iTunes App Store:

That’s because Apple has built a platform for adults.

Like many, I have downloaded dozens of iPhone third-party apps over the last several days.

And, unlike what one can discover on the other hot apps platform–namely Facebook–they are uniformly superb, lovely, useful and fun in a really nonjuvenile way. …

I think you would not say so after looking over a lot of what is available at the App Store on iTunes.

Lots and lots of the apps there are games, of course, which are the most popular.

But what amazingly clever games, like MotionX Poker with the delightful rolling dice, or the humming swish of PhoneSaber (totally silly, but in a profound manner that Vampire-biting on Facebook will never achieve).

And the list of useful stuff–Pandora Radio, Starmap, WeatherBug, Evernote and WHERE–is long and growing longer, and these seem to enjoy as much prominence and popularity as the sillier stuff.

In addition, the ability to truly use other Web services in a mobile setting–from Photobucket to Yelp to AIM to the New York Times–makes the iPhone an even more useful device to me.

And for each of the apps I can also imagine various monetization schemes that now make a lot more sense since the iPhone platform enhances them with mobility and simplicity.”

Or, as the cliché goes: “The Plains are covered with the bodies of pioneers.”

But some of them, of course, made it to California.

The rest, as they also say, is history.

Speaking of which, here is a video of AllThingsD.com‘s Co-Executive Editor Walt Mossberg discussing the iPhone’s significance at the Aspen Ideas Festival in July, in a short snippet from his talk there:

In BoomTown’s ongoing quest to overdose on tech conferences, I traveled south of San Francisco last night for Fortune magazine’s Brainstorm: TECH conference.

Run by David Kirkpatrick, it’s well done and a great place to run into a range of techies from Silicon Valley, as well as talk to more creative thinkers on where tech is going.

I was there to be on a dinner panel with fellow bloggers Om Malik of GigaOm and my favorite geek to tease, Robert Scoble, of Scobleizer. Fortune’s Adam Lashinsky moderated.

It was an interesting panel about a range of topics, from Yahoo (YHOO)–Kevin Kelly was bored, bored, bored with that topic–to the looming economic pressure that the digital industry is about to experience (a bummer, but entirely true).

Here’s the video: