> if they stick to their guns and simply improve Tumblr without lowering its value to the community, I can see a real future for Yahoo, one where it isn't just irrelevant, but where it makes it's own products and creates new and exciting applications.

I fail to see the connection between the acquisition of Tumblr and your vision of Yahoo suddenly becoming able to create new and exciting applications on its own as a consequence.

According to Wikipedia, Yahoo's main source of revenue is search and display advertising (by far). By purchasing web sites without any business model and trying to monetise their traffic, they remove value from these sites (for the user) and add nothing that these sites couldn't have done by themselves, in exchange for huge amounts of cash that could instead be spent on developing those "new and exciting applications".

They might get some value out of the talent they are acquiring with Tumblr on the long run, but I doubt that it'll be worth that much.