I agree with you that only hiring smart people is not going to fix any problem. But thats not the only thing thats happening. After reading dozens of Quora discussions on Yahoo over the last few months, I am getting the impressions from current employees (and former employees who are in touch base with their former colleges) is that there are also very big changes on how these smart people are being managed. I remember reading about:

- "All hands on deck weekly meetings."

- More emphasis on what the employees want and need to perform better and taking care of those solutions.

- Open door policy, if anyone needs to talk to higher ups.

We don't know other details, but I am guessing these are positive changes.

Nice... references would be much, much appreciated!

Its a lot of reading, but I would start with this two:

http://www.quora.com/Yahoo/Is-it-true-that-Yahoo-is-better-t...

http://www.quora.com/Yahoo/Why-do-people-still-work-at-Yahoo

You can also check out related questions and their search on yahoo related recent question, lots of activity by current/former yahoo employees, both anonymous and on record.