According to The Wall Street Journal (link behind a paywall), this probability is very high right now, and the companies might walk away from the deal by the middle of next week. You can't really dismiss the fact that Google and Yahoo own over 80 percent of the Web search market, and it seems that Google and Yahoo can't convince the U.S. Department of Justice that it's not a monopoly.
Yahoo spokesman Tracy Schmaler has given Reuters the usual PR drizzle; Yahoo, as she says, believes strongly “that this agreement will strengthen Yahoo's competitive position in online advertising and will help to drive a more robust, higher quality Yahoo marketplace for their advertisers, publishers and users.”
Google spokesman Adam Kovacevich said even less: "We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process."
Therefore, the deal may not be completely dead yet, but the Wall Street Journal claims that the talks both companies had with the Department of Justice on Thursday weren't going too well.