Hotmail doesn't suck so bad anymore. It really doesn't. In fact, the new Windows Live offerings are VERY nice indeed! They're just sooooo late to market with them.
That's my beef with MS...they're late to market on nearly everything internet focused. By swallowing Yahoo, they'll just make Yahoo even later to market.
Although the MSN front-end could easily be axed for Yahoo's front-end services, it makes sense to keep the Live and make it better alongside Yahoo. The think-tanks will consider that to be redundant, but it makes sense. Like EMC bought VMWare and left VMWare well alone, MS would be wise to do the same.