Researchers analyzing results from the ICSI Netalyzer project have found ISPs redirecting traffic bound for Yahoo! and Bing to third parties like Paxfire, Barefruit, and Golog. According to this EFF article:

Netalyzr's measurements show that approximately a dozen US Internet Service Providers (ISPs), including DirecPC, Frontier, Hughes, and Wide Open West, deliberately and with no visible indication route thousands of users' entire web search traffic via Paxfire's web proxies.

This appears to be done by returning the IP address of the intercepting server rather than the true IP address when you do a DNS lookup of the server (www.yahoo.com for example). Your browser then connects to Paxfire or one of the other companies, rather than yahoo, allowing them to collect data on your activity and possibly modify the results.

There are some things you can do to protect yourself. If your connection to the website is using SSL, or if you have a VPN, your ISP can not intercept or modify your connection.

If you are running FireFox you can install the "HTTPS Everywhere" extension, which will ensure that your connection uses SSL for most of the most popular sites on the Internet.

Using Anonymizer Universal will ensure 100% of your traffic goes over an encrypted connection which will prevent this kind of interception for all websites.

I encourage all of you to visit the ICSI Netalyzer website to test your connection and your ISP for this kind of interception, and to contribute information for their research to detect this kind of strange and/or nefarious activity.