Yahoo and Google should merge. Yahoo has some great services like premium mail, web hosting, media stuff, etc. Google just crushes them, though, on application development that centers around search and organizing information. The combined entity might actually have the power to really threaten Microsoft, which I don't think either has separately.
With the spare change on the floor, they could buy apple and tivo and have a good foothold inside the home/small business as well as on the net.
If this happens I want 0.0001% of the merger value as my investment banking fee.