More interesting than the vulnerability itself is the way Yahoo has handled it so far. They used an automated program to analyse the source code for each widget in their gallery, and identified those that may have this vulnerability. After identifying those widgets, they temporarily removed their listing from the public widget gallery pending an update. Then they sent out an email to the widget authors.
The email described three ways for authors to address this problem. Two involved minor code changes; one was a proper fix using a new method of doing the same thing, and the other was a hack that worked around the specific problem. The third method was for the author to convince Yahoo that their automated tool had a false positive and the problem did not exist in that particular widget. If a widget author failed to take one of these actions by 16 August, then the widget in question would be disabled from running on other peoples' computers on that date.
The real point of all this is that Yahoo has the ability to exert control over which specific widgets you may and may not run using the Yahoo Widget Engine. This may have been something that all users "agree" to using the standard clickthrough license agreement, but I don't remember what it said and I'm sure nobody else has read it either. This type of control is technically feasible in many situations—Microsoft could theoretically prevent specific malicious programs from running on Windows—but Yahoo has shown that they aren't afraid to wield this control when the situation arises.
While the Yahoo Widget Engine is free (gratis), it is not Free (libre). The widget engine runs on your computer and appears to follow your instructions, but Yahoo ultimately retains control over its operation. They may prevent specific widgets from running, or may prevent the widget engine from running at all, depending on their whim. A truly libre widget engine would do exactly what you told it to do without taking instructions from any other person or entity. And it would come with source code, so you could verify this for yourself and even modify it if you wanted.
Although I believe in libre software, I will likely continue to develop widgets for the Yahoo widget engine. It's very easy to do and is a great way to build good-looking cross-platform simple gui apps. There's no fundamental difference in the control Yahoo exercises over their Widget Engine, and the control Microsoft exercises over Windows. I am, however, left wondering just how much effort would be involved in building a libre Yahoo-compatible widget engine. Would it be worth it?