In reaction to Microsofts bid to buy Yahoo, Yahoo ran a trial showing Google ads on Yahoo in the US. Slide 14 in this Yahoo Presentation to their stockholders gives a good explanation to exactly how the test worked (the rest of the presentation also makes for a pretty interesting read).
If Yahoo decided to go ahead with the plan to show Google ads on Yahoo it would effectively become one of Googles search partners. Whether or not this is a good thing is up for debate. The accounts would be much easier to manage but the costs would probably go up as this is a Yahoo exercise aimed at increasing its PPC advertising revenue.
Yahoo being one of Googles search partners would be the icing on the cake for Googles total dominance of the search engine world – this is something that I find slightly unnerving.