What almost no one here knew was that behind the scenes, Mr. Icahn had been conducting an extraordinary round of secret negotiations with Steve Ballmer, the C.E.O. of Microsoft, the result of which was yet another Microsoft offer for Yahoo. The new bid from Microsoft and Mr. Icahn spilled into public view Saturday night. Yahoo quickly rejected it.

For good reason. The deal was so ridiculous  it called for Yahoo to sell its search business to Microsoft and for Mr. Icahn to take over the board of what was left of the company after assets were spun off and dividends paid out  that when the moguls here started to learn the details, it actually began to change the perception of Mr. Yang’s predicament.

Think about it: “What global company in their right mind formally teams up with Mr. Icahn?” as one invitee asked. Mr. Icahn may be a brilliant investor  he actually doesn’t get enough credit or respect for that  but let’s be honest, he doesn’t use a computer, let alone know how to run Yahoo. And what does it say about Microsoft? The notion that Yahoo’s board would sell the crown jewel, its search business, to Microsoft and then hand over the scraps of the company to Mr. Icahn is, as Roy Bostock, Yahoo’s chairman, said, “absurd and irresponsible.”

(The war of words continued with Mr. Icahn firing back on Monday: “I have yet to see a company distort, omit and twist events and facts in the manner that Yahoo has done.” Separately, Microsoft claimed its proposal “did not include changes to Yahoo’s governance,” though that’s exactly what its partner, Mr. Icahn, was calling for.)

Mr. Yang may once have looked like an entrenched founder unwilling to sell the company, but now it is Microsoft that has those in the deal-making world wondering about its judgment. “At this point, it’s embarrassing,” one technology C.E.O. whispered just out of earshot of Bill Gates. “Ballmer should either buy the company or forget it.”