Here's Yahoo!'s new and improved news search with a dash of blog search. (This is probably not a full-blown Yahoo! blog-search offering.)
In this example for "local search," see the right column. Yahoo is also integrating Flickr content and audio/video results.
While integrating all these different types of content into search results may prove challenging from both a technical (though I wouldn't know) and UI perspective, integrated search is ultimately better than what might be called "balkanized search" — lots of different, segmented sites. I believe that most users want convenience and simplicity (and some comprehensiveness), and that argues for integration.
In some not-too-distant future, from a user perspective, there will be no difference between blog content and traditional news sources. The publishers/content creators themselves are already starting to blur those lines. As a user, I just want information, and sometimes opinion, and so it makes sense to integrate blog search into other content results, which now superficially exists on the major engines.
The specialized blog search engines are valuable for "power users," who may be looking for specialized content. But when it comes to local, as we've said before, there's more and more valuable user-generated content residing in blogs that needs to be captured and surfaced for consumers to benefit. This also argues for some sort of integration.
In terms of new and improved news search, a company called Inform (recently mentioned on SiliconBeat) is doing some interesting and sophisticated things with news and blog search. I believe the official launch is next week.