Could be better. Nobody knows exactly how this will work out, but if Microsoft decides to also use its ads in the Yahoo partner syndicated feeds, then it will help with international coverage a lot, and may also help a bit with US as well.
If second-tier were to die in some odd reason because of arbitrage problems (it will die eventually anyway), then the trademark typos or the domains that Yahoo/Google blocked out of their feed will no longer be monetizeable. Right now most parking companies like Bodis or Parked use second-tier as a backup for the domains that Yahoo/Google has blocked. Overall, it makes no sense because second tier is made up 98%+ of Yahoo arbitrage advertisers, so if Yahoo blocks a domain, it goes to second tier, and ends up on Yahoo advertiser sites at the end anyway.
The question is, will Microsoft use ads on the Yahoo partner syndicated feeds? If there is 1 system for advertisers to bid on keywords, then it has to be a YES.
To be honest, I think it would've been better if Microsoft would've seperately started syndicated feeds to domain partners. This way Yahoo companies can just combine a Yahoo feed with Microsoft feed. And Google is strong enough to stand on its own. The Microsoft+Yahoo deal will help things short-term, but long-term it is just 1 less competitor. We are down from 3 to 2.
Overall revenue short-term will probably be better. People with trademark typos will probably be in an even worse position.