Pidgin appears to have stopped working with Yahoo starting about 2 days ago, but there's a quick way to fix this.

Go to Pidgin > Tools > Accounts, than click on your Yahoo account and then "Modify". On the Advanced tab, "Pager server" field enter either:

cs101.msg.mud.yahoo.com

or:

cs102.msg.mud.yahoo.com

or:

scsc.msg.yahoo.com

Then login again, now everything should be fine.

Hopefully Pidgin will be updated soon and work out of the box.