I wanted to take the time to post this here in case someone else is having the same issue. It took me 3 days to figure this out. I had the same problem as bookoflife (above) did. Couldn't find any help online, tried everything I could think of, went thru 2 tech support calls with Yahoo, etc... Btw, this is not a DW issue but I'm sure it will help some others out there if they stumble upon this post. I was using DW and tried other FTP clients as well. None of it worked.
Solution: I believe Yahoo changed their password requirements recently and the password you've been using for years no longer meets the new stricter requirements. However, there is no messages that they sent us to alert us of that! I figured this out by creating a new ftp user and realized my old password wasn't accepted as valid. The new user I setup works fine. So, give try that.