After searching the internet and doing a lot of experiments (including downgrading to YM 7.0, 7.5, 8.0, editing Windows registry, etc), I finally gave up. Good thing, a friend told me that he was able to make it work previously and this was the simple solution to my misery:
1. Upgrade to the latest version/build of yahoo messenger if you haven't done so http://messenger.yahoo.com/download
2. From Yahoo Messenger, click Messenger>Preferences>Connection then select "Connect via proxy server" option as shown below then click OK:
3. From Internet Explorer, click Tools>Internet Options>Advanced then untick "Use HTTP 1.1 through proxy connections" checkbox as shown on the image below then click OK:
4. Check any client/local firewall (e.g. Norton Client Firewall) that may block the connection to yahoo server.
That's it! I now have my YM friends back and you may have yours!
Note:
-If you still cannot make your YM work using the above method, you might want to try the web-based yahoo messenger instead http://webmessenger.yahoo.com or Meebo (check with your network administrator if this is allowed in your office)
-If any of the usual sites you are visiting no longer displays properly, you may try reverting back to your original settings.
