Update: @nanderoo on Twitter informed me the latest release of Pidgin addressed the Yahoo issue and in fact if you go to the Pidgin site there is a message "Yahoo issues are fixed in 2.5.8." I'll keep my post up for future reference but it doesn't look like its needed anymore.
Have had a couple friends come to me and tell me they've been having a problem getting Pidgin to connect to the Yahoo service. I don't typically use Pidgin but fired up my Pidgin and confirmed there was a problem connecting to Yahoo. I was outside any corporate firewalls which help narrow down what the problem could be. Didn't have a problem logging into my Yahoo service using other IM clients like Adium so the problem wasn't the account.
Did a little digging and found an old post talking about how you needed to configure the "Yahoo Pager Server" in Pidgin using an IP address instead on the URL of scs.msg.yahoo.com. The Pager Service can be found on the Accounts Screen->Yahoo Instance ->Edit Account->Advance Tab.
I ran the command host scs.msg.yahoo.com and got all the IP addresses associated with that URL and did a check on the IP address I had configured and it was no longer in the list. I played around and replaced the IP address I had with a new one from the current list. Pidgin seems to like the new IP and stopped giving me the message that it was unable to connect to service but still didn't display my buddy list. As good measure I shut down Pidgin and restarted it and everything seems good now. Connect to Yahoo service again and able to access my Buddy List. Hope this works for you too.
Here is the last output I got when I the command;
$ host scs.msg.yahoo.com
scs.msg.yahoo.com has address 76.13.15.33
scs.msg.yahoo.com has address 76.13.15.34
scs.msg.yahoo.com has address 76.13.15.35
scs.msg.yahoo.com has address 76.13.15.36
scs.msg.yahoo.com has address 76.13.15.37
scs.msg.yahoo.com has address 68.180.217.6
scs.msg.yahoo.com has address 68.180.217.7
scs.msg.yahoo.com has address 68.180.217.8
scs.msg.yahoo.com has address 68.180.217.9
scs.msg.yahoo.com has address 68.180.217.10
scs.msg.yahoo.com has address 68.180.217.11
scs.msg.yahoo.com has address 68.180.217.12
scs.msg.yahoo.com has address 68.180.217.13
scs.msg.yahoo.com has address 68.180.217.14
scs.msg.yahoo.com has address 76.13.15.29
scs.msg.yahoo.com has address 76.13.15.30
scs.msg.yahoo.com has address 76.13.15.31
scs.msg.yahoo.com has address 76.13.15.32
scs.msg.yahoo.com mail is handled by 0 .