It’s being widely reported that Yahoo (YHOO) and News Corp. (NWS) are back in talks to combine Yahoo with MySpace and other properties that make up Fox Interactive Media, News Corp.’s online arm. The companies held what I’m told were very preliminary talks along a similar vein last year. The deal would have three main components: 1) News Corp. would contribute FIM to Yahoo; 2) News Corp. would invest in Yahoo; 3) a private-equity partner would inject yet more cash into Yahoo. The goal, in theory, would be to raise Yahoo’s value with the cash investments, thus obviating the need for Yahoo to sell to Microsoft (MSFT).

Here’s the problem. Or, rather, the problems. It’s going to be tricky to value MySpace, which will be the linchpin of the value of what News Corp. is contributing. If whatever News and Yahoo were to assemble didn’t add up to Microsoft’s current offer ($31), or counter-offer, the board of directors at Yahoo would be in a pickle.

Couldn’t they just accept a lower bid with the argument that Yahoo is worth more independent than selling out? Sure. Then they’d get sued. They’ve got to be able to best Microsoft’s offer in a reasonable timeframe, or they’re not doing their fiduciary duty.

There’s more. In a note to clients Wednesday, UBS analyst Ben Schachter (who had a buy rating on Yahoo at $19, when many of his competitors had lost faith, because he figured Yahoo’s falling price would provoke a sale, or at least a bid) reasons that the only way for a YahooSpace to achieve necessary profits would be do a search outsourcing deal with Google (GOOG). That’d bring the companies back to the same regulatory conundrum they’ve already been grappling with: Google’s search share is too big. There’s also the question of whether Yahoo needs MySpace. After all, “Yahoo’s problem has not been a lack of inventory, ” writes Schacter, meaning that it already has a huge audience. It’s problem, he writes is “its poor execution on optimizing monetization.” That means Yahoo isn’t so good at making money from its 500-million-plus audience. Schacter has a $34 price target on Yahoo because he thinks Microsoft will raise its bid.

So is Yahoo wasting its time talking to News Corp.? Of course not. Its stock traded over $30 Wednesday, closing at $29.88. To the point of my earlier post, that’s a sign investors expect a higher bid from Microsoft, not that it’s overly impressed with a News Corp.-Yahoo tie-up.

It’s become cliche for people in the know to say that MySpace, the News Corp. (NWS)-owned Internet company, isn’t cool anymore. Facebook is the site that’s got the momentum, these people say.

An recent interesting throwaway line in a really fascinating article shed some light on this debate:

The kids all said that a) no one listens to the radio anymore, b) they mostly steal music, but they don’t consider it stealing, and c) they get most of their music from iTunes on their iPod. They told us that MySpace is over, it’s just not cool anymore; Facebook is still cool, but that might not last much longer; and the biggest thing in their life is word of mouth. That’s how they hear about music, bands, everything.

That’s a quote from Mark DiDia, head of operations for Columbia Records, which is owned by Sony (SNR). It comes from an article in last weekend’s New York Times Magazine, “The Music Man,” about Rick Rubin, the guru-like record producer that Sony hopes will save its slowing dying business. The “kids” DiDia refers to are recent college grads in a focus group. I’m certain that the management team at MySpace and Facebook will tell you a million reasons why the kids are wrong and that their business story will continue for years. Still, the thing about focus groups is that they don’t lie.

For what it’s worth, the kids may think Facebook is about to become uncool, but the oldsters are just discovering it. When I returned from a weeklong vacation I had 23 “friends” requests at Facebook, 9 from people I actually consider my friends or meaningful acquaintances. I go to Facebook about once every three weeks just to see who has asked to be my friend. I quickly leave, however, and suspect most of the 30-year-old-plus people who are now finding out about Facebook will do the same.