Stephen Hood, a former Yahoo employee, said that "Similar to Google Instant, Yahoo developed an interface 5 years ago, called "LiveSearch" and it was launched as an experimental interface for AllTheWeb.com."
"Yahoo wouldn't let us ship LiveSearch on yahoo.com or as a part of Yahoo's search engine. Instead we were only allowed to launch it on AllTheWeb, a smaller, lower-traffic search engine that Yahoo had acquired years earlier and largely left to atrophy.(...)
LiveSearch was thus relegated to a tiny test bucket of users who didn't actually use Yahoo's search product (or any modern search engine). Usage data from this flawed test was used to internally evaluate its success in comparison to model it was actually trying to disrupt. Lacking high-level support for its larger vision and starved for resources, LiveSearch was understandably put out to pasture."
Stephen thinks that Google "still has the organizational courage to challenge its own preconceptions" and that's the reason why it can launch features like Google Instant, which change "a user interaction model that's been largely unchallenged for years".
Here's a YouTube video of LiveSearch in action!: