Well, I wouldn't tell him to go $%#^ himself. Might be appropriate, he sounds like a real ass. But not the most productive thing.
very true. you dont want to start calling him names. you just want him to know that you have more class than he does and you arent scared of his idle threats. deactivation of the account is one of the last actions yahoo will take, not the first. since what you did is in violation of the rules, yahoo could take some action against you, but more than likely it will be 1)The suspension of specific game privileges (trading, message board posting, etc.) for the remainder of the season or 2) The suspension of ALL playing privileges for the remainder of the season. you have to do something really really bad to get your account deactivated altogether.
normally, i dont like dropping all of your players because it can hurt the other teams that are still taking it seriously and it is against the rules. however, it doesnt seem like there are too many people taking it seriously in that league.
i would just tell the guy that you dont need to cheat and bend the rules to have fun, but if he needs to do that so he can sleep at night then he can have all your players. and definitely call his bluff on the the yahoo account.