Of course I have something to say about the news yesterday that AOL would be a key investor in a new early-stage venture fund being started by TechCrunch’s perpetually petulant editor Michael Arrington — with a big, fat and decidedly greasy assist from a panoply of Silicon Valley’s most powerful VC firms and angel investors.

Arrington has previously called me “chief whiner” — oooh, buuuurn, although fair enough, since I have compared him to an egomaniac turtle named Yertle in the past — about my nagging him over the importance of upholding standards of fairness and ethics in journalism.

So as not to let him down, let me begin the whining.

First, my initial reaction when I first heard about the deal: Ugh. Sigh. Hopelessly corrupt. Now 100 percent more icky! A giant, greedy, Silicon Valley pig pile.

I was upset.

By early evening, after my kids told me to chillax, my dark mood had changed to accept that the transaction — however profoundly distasteful to me — was part and parcel of the insidious log-rolling, back-scratching ecosystem that has happened in every other center of power in the universe since the beginning of time.

And so it goes in Silicon Valley.

In fact, the creation of a $20 million investment kitty that Arrington has dubbed CrunchFund is simply the formalization of a long-standing arrangement that has already been going on since he founded his popular tech blog.

That is to say, in which the basic standards of journalism are first warped by calling it newfangled truth-telling and then endlessly corroded by using a wily and unusually aggressive combination of favors and threats to extract, from start-ups and VCs in need of press, both exclusive access and information.

And now, inevitably, money.

This could have been a lot cleaner, of course, by Arrington simply resigning from TechCrunch, becoming a VC and perhaps starting a new blog where his agenda is much clearer, from which he could huff and puff away as he does with much entertaining gusto at real and (mostly) imagined slights.

There is certainly precedent for VCs blogging, including Fred Wilson, Brad Feld and Ben Horowitz. And, despite my criticisms about ethics, it is clear that Arrington is a talented writer whose unique voice would be even stronger if it was truly seen as separate from what has become a news organization.

But because of his obvious need to be the center of attention — requiring the ermine kingmaker mantle and foisting his patented I’m-here-to-tell-it-like-it-is attitude on us all — that appears to be impossible.

(By the way, I await Arrington’s usual inane rant about the fictional conflicts of interest related to my gay Google marriage anytime now in 3 … 2 … 1, always and purposefully leaving out the pertinent facts that I can only wed one person, get no financial benefit and am also a prominent critic of the scary search behemoth, while he can make a badillion questionable and grossly tangled investments.)

Personal annoyances aside, what’s most interesting here is the group of Silicon Valley power players who lined up to bow and scrape and then hand over a small pile of dough to the blogger who would be king.

They include: Sequoia Capital, Redpoint Ventures, Kleiner Perkins, Greylock Partners, Austin Ventures and Accel Partners, as well as individual investments from partners at Benchmark Capital and Andreessen Horowitz, entrepreneur Kevin Rose and DST Global’s Yuri Milner. And, of course, the inevitable Arrington BFF Ron Conway.

Holy googa mooga, that would be, well, everyone, except Ashton Kutcher and Justin Timberlake (who will surely appear soon enough).

As one person also pointed out to me, I don’t recall this many competing VCs investing in one company, let alone another venture fund.

It goes without saying that the reasons they all decided to jump in this fetid pool with abandon are quite varied, if all entirely compromised.

One investor told me — off the record, naturally — that he thought it would be an interesting experiment to see what happened and so he wanted in, especially since everyone else was doing it.

Another well-known VC said that there is no downside to being financially affiliated, especially in attracting talent to its start-ups, with Arrington and, by extension, TechCrunch.

The well-respected Reid Hoffman of Greylock was the only one brave enough to talk on the record, explaining the reasoning pretty clearly:

“Techcrunch will get some real deal flow from entrepreneurs that we would otherwise not see, because they have established a prominent position as the SV/Tech industry information feed. As many tech entrepreneurs read it — both within Silicon Valley and globally — and view the information news feed to be their target for announcing themselves to the world, Crunchfund will have access to deal flow to these diverse and early stage companies. Some of these companies will be the kind of early stage companies with billion-dollar potential that Greylock invests in.”

There you have it: No one can afford to be out of the deal flow in these times, even if it means cutting corners.

While TechCrunch’s owner, AOL, said Arrington will no longer be managing editor, with only writing duties at the site he dominates and with no editorial control, Hoffman’s use of TechCrunch for CrunchFund was accurate, because in the eyes of many they are interchangeable.

That’s due to the fact that Arrington still breaks or is clearly the source for important stories on the site and, more importantly, is the big swinging dude who attracts all the eager entrepreneurs to the party. He is the fulcrum of that site, even as it has grown.

And so it will remain, I am guessing, no matter how much AOL insists it will not be so, because the easy questions pile up quickly:

Will Arrington keep doing what are clearly news stories, for example, even though he protesteth too much — as he did in the New York Times yesterday — that he is not a journalist?

And, if so, is it right for him to do so given his insider status, creating a nonparity of sourcing and crystal clear conflicts of interest?

Most of all, can he resist his palpable love of news-breaking and scoops, even if he gets them in ever more unseemly ways?

As if to make it all pretty, Arrington told reporters yesterday that he has put a clause in his limited partnership agreement so he can report on anything he likes, and in any way, about his investors and their companies, however confidential, except those he invests in.

O joyous day! Freedom of the press is preserved and our sacred First Amendment can breathe a sigh of relief, now that it is enshrined in an unholy blogger-VC LP agreement.

After pausing for a moment so that Thomas Jefferson and Edward R. Murrow can stop spinning in their graves, you can go down this road for many increasingly bumpy miles, which only becomes more twisted and confusing as it continues.

I finally talked to one investor in CrunchFund, who said simply and honestly: “It’s not that much money, so who cares?”

Indeed, who does care anymore about crossing what had long been very bright lines in journalism and, if you want to get all cosmic, in life?

Obviously, most of all, not AOL, or its CEO Tim Armstrong, or its head of content, Arianna Huffington. The pair, for whatever reason, decided to make a startling exception for Arrington from a rule that explicitly bars reporters at its media units from investing in the companies they cover.

That happened after he recently did a complete 180 from a previous decision to stop investing and jumped right back in, leaving Armstrong and Huffington to clean up the ethical mess.

They only made it worse, with their decision to throw journalism under the bus by letting Arrington do as he pleased, while touting how important it was for other content sites at AOL to remain more pure.

In the spirit of full disclosure, these kinds of ethical lapses are endemic these days in journalism. Case in point: The appalling phone-hacking controversy taking place at News Corp.’s News International unit in Britain.

While I cannot speak for Dow Jones, I can say that the behavior in another News Corp. property certainly takes its toll on those who adhere to higher standards at the company, especially when it comes to morale.

Thus, I can imagine how others feel at AOL — including those you-know-who-you-are silent ones at TechCrunch — who can’t and, more to the point, wouldn’t make the deals Arrington has been allowed to get away with.

It is not a good feeling, I can assure you.

And, while I have not spoken to her about it, I’d imagine that Huffington cannot be thrilled to be pushing for better journalism at AOL and trying to burnish her cred by hiring some top reporters, while also having to deal with this.

That’s okay, because Armstrong was perfectly willing to do the awkward pretzel-twist needed to explain away the controversial situation, also in an interview with the Times:

“TechCrunch is a different property and they have different standards. We have a traditional understanding of journalism with the exception of TechCrunch, which is different but is transparent about it.”

In this case, Tim, I am sorry to inform you that transparency is a complete canard and is more likely to end up covering up a lot more transgressions than it ever will reveal.

And, essentially and lazily sloughing it off by saying, “That’s just Mike being Mike,” is not going to cut it, at least not with me.

Not that any amount of tsk-tsking about it matters, I suppose, as Arrington finally gets his fervent Pinocchio-on-a-star wish to be a real-boy VC, can add yet another tainted buck to the pile of billions his venture pals already have, and just call it another typical day in Silicon Valley.

Still, when you are the designated whiner-in-chief, it is pretty much all one can do.

BoomTown actually called Zynga CEO Mark Pincus and asked him specifically about this deal last week and he denied it completely, not even relying on a more appropriate “no comment.”

In fact, he noted expansively that Yahoo (YHOO) had completely missed the boat in social gaming and that such a deal was probably a good idea to keep the Silicon Valley icon relevant in the space.

Pincus (pictured here, in the mind of BoomTown) did say the pair had been in discussions “forever,” but that there was nothing pending because “it’s impossible to get anything done with that company.”

Guess not (and good luck with the partnership with Pinocchio, Yahoo!).

The move by the gaming start-up is an attempt, presumably, to increase distribution of its popular games, such as FarmVille, beyond Facebook.

Zynga and Facebook recently engaged in a noisy game of brinksmanship over a wide range of issues, including charges for virtual currency, which included empty threats by Zynga, leaked to the press, to leave the social networking site.

Until now and for the most part, Zynga has built its business on Facebook.

But Facebook, according to numerous sources, has been increasingly wary of Zynga despite recently signing a long-term deal with the company, especially due to its practice of aggressively sending what Facebook considers spam to users to spur gaming activity.

Now Zynga has a whole new audience–Yahoo’s huge base of 600 million monthly users–to market to.

In any case, the move is a good one for Yahoo. While it is strong in casual gaming, it is weaker in the fast-growing social arena.

By pulling in a wide range of social services, as it did with Facebook and Twitter recently, Yahoo is seeking to be the place where users can aggregate their social experiences.

Not surprisingly, Yahoo execs touted the deal at its investor day, which is taking place now.

Here’s the press release from Yahoo about the deal:

YAHOO! GETS ITS GAME ON WITH ZYNGA

Partnership Weaves the Web’s Most Popular Social Games throughout Yahoo

SUNNYVALE, Calif., May 26, 2010–Yahoo! Inc. (Nasdaq: YHOO), today announced a partnership with Zynga that will integrate Zynga’s popular social games through Yahoo!’s global network. The partnership enables Zynga games to reach more than 600 million people worldwide across Yahoo!, giving them access to new and deeper ways to engage with friends and make new ones.

Zynga’s game integration with Yahoo! is part of Yahoo!’s commitment to offer personally relevant experiences to people from across the Web. Zynga games are expected to roll out on the Yahoo! network in the coming months and will include:

Ability for people to play Zynga games and access their personal Zynga game updates across Yahoo!’s properties including the Homepage, Yahoo! Games, Yahoo! Mail, Yahoo! Messenger and others.

Sharing of updates across multiple social experiences simultaneously while playing their favorite Zynga games on Yahoo!

Product integration of Zynga games with the Yahoo! Application Platform (YAP), Yahoo!’s OpenSocial container through which third-party developers can develop applications on Yahoo!

“Yahoo is focused on providing compelling, personally relevant experiences and social games are core to this experience,” said Hilary Schneider, executive vice president, Yahoo! Americas. “Zynga will bring top notch social game experiences to Yahoo!, including through our open platforms such as Yahoo! Application Platform and Yahoo! Updates. Yahoo! will also continue to work with other partners, developers and publishers to bring compelling innovations and experiences from across the web to our users.”

“With over 35 million unique users playing our games every single day, social games are fast becoming a leading source of entertainment worldwide surpassing most television shows,” said Mark Pincus, founder and CEO of Zynga. “Our partnership with Yahoo! gives millions of new users the ability to connect with friends and families through games.”

Today’s partnership along with Yahoo!’s recently announced Facebook and Twitter relationships brings together social experiences from across the web and extends Yahoo!’s social strategy by providing multiple places across Yahoo! for people to play social games, access and share information, and connect with the people that matter to them the most.

Now, we have two Googlers, who are demoing Google’s new Chrome browser and its features and user interface.

“Friendly” tabs, knowing your history better graphically, auto-typing, simplicity, easier downloading with a new window that one guy is calling a real app like “Pinocchio, because we wanted to build a real boy.”

Well, Pinocchio was wood for most of that story, but I like the effort!

Also, they show off the “Incognito” feature, where you can hide Web searches you don’t want others to see, which basically means porn and Barry Manilow fan sites.

Except the Google (GOOG) guys use a toe fungus search!

This is gross, although hiding toe fungus is a good idea related to Web navigation software.

Now, another smart-looking guy comes on, who looks like the other guys, and discusses the architecture, including rendering, security and so forth.

Also a speed test, from another Google guy, from Denmark, where Google’s Chrome–incredibly–beats Microsoft’s Internet Explorer! It is like one of those blind taste test commercials on television.

My mind starts to wander and I wonder if Microsoft Founder Bill Gates is watching this and getting plenty steamed up north at Microsoft (MSFT) HQ.

At this point, I suggest you please watch the Webcast of this demo to listen to the details, available through both Windows Media Player and RealPlayer.

Because once the Googlers start talking “plug-in bugs,” I start staring at Google co-founder Larry Page–who is here sitting with with top Google exec Marissa Mayer off to the side–to see if both are paying rapt attention.

They are, natch. (I should have eaten a tasty pastry.)

Please see this disclosure related to me and Google.

And, while many said the market would develop from the frivolous to more useful–making Facebook a true “utility,” as promised by Founder and CEO Mark Zuckerberg–that day is not today for the social-networking site or its third-part widget makers.

Instead, it’s still Pinocchio at Funland (and we know how that turned out!).

While this is great news for my 3- and 6-year-old boys, it still makes grumpy old me dubious.

Because, as I wrote in a post called “The Children’s Hour: Facebook Apps Are for Toddlers (There, We Said It)” that was published last October, I still assert that businesses based on Zombies and apps called Pop Ur Zit are questionable models:

But, so far, as popular as those apps have become, what Zuckerberg and the widget-makers have wrought is mostly silly, useless and time-wasting and the kazillion users of these widgets are pretty much just acting like little children.

I never thought I would call the often frivolous AOL (TWX) back in the day–very simply, a Neanderthal version of Facebook–a mature offering in comparison…

And if that is all there is, can Facebook really build a viable and long-lasting business on what is essentially a bunch of games that will ultimately become wearying for users? Doesn’t it need more robust apps that actually are useful and relevant and make Facebook the service that Zuckerberg has often told me was a ‘utility’?

While Facebook–with a cleaner and more strict look and a better navigation–is surely less goofy than rival MySpace (NWS) for anyone over 12 years old, and its video, photo and email features are nice, the vast majority of its apps are still mostly as dumb as a box of hammers.”

Unfortunately, that’s still the case and today, we have a nice chart below from FlowingData to help our little case along from a visual point of view (click on the image to make it larger).

Case, unfortunately, not closed.