It seems that Yahoo has dropped support for legacy way of login, causing some problems with Pidgin. Possible solutions:
- Update to version 2.5.7 (works for me :-))
- Accounts -> Edit account (to yahoo account) -> Advanced -> and to Pager Server erase “scs.msg.yahoo.com” and put instead 126.96.36.199
- The bug on Launchpad – also gives a more detailed list of alternative IPs
- The blogpost announcing Pidgin 2.5.7
- Update: even more information abut the issue.
Picture taken from BlueLinden's photostream with permission.