Go to Pidgin > Tools > Accounts, than click on your Yahoo account and then "Modify". On the Advanced tab, "Pager server" field enter either:
cs101.msg.mud.yahoo.com
or:cs102.msg.mud.yahoo.com
or:scsc.msg.yahoo.com
Then login again, now everything should be fine.
Hopefully Pidgin will be updated soon and work out of the box.