What would Apple do with Yahoo? Yahoo now is where AOL was in the '90s, symbolic of everything that's cheesy and lame about the Internets. The last thing super-cool Air-toting Apple customers want is to be associated with it.
If Apple buys anyone it should be Sun (or what's left of SGI).
One word: Distribution.
Of what?
Music, movies, webapps, everything.
I think one reason Apple has always kept a fairly hefty cash balance is that it makes hostile takeovers harder.
The other thing you can see from Apple's history is that they tend to buy smaller companies only when the software those companies own matches Apple's strategy.
Buying back shares is a waste at this time and SJ doesn't like buybacks. Some people see Apple buying Adobe. ADBE's market cap is around $12B but to me a big negative is the amount of overlap between their software suites... lots of value will be wasted but on the other hand, Apple would have a virtual monopoly on digital content production. If I were SJ, I'd go after Yahoo. It's now around $17B and would offer Apple more room to grow and would also give Google some things to think about as they're now going after Apple's mobile slice.