I know there are a lot of opinions going back and forth on this, but I want to specify some reasons why I think this would be a bad idea for the Yankees.
1. We don't absolutely need him to win the World Series. We proved that this year. We can assume that Pettitte will be resigned, which I think is a good bet, and we'll get Wang back about halfway through the year. If we assume that neither Hughes nor Joba have a breakout year this year, and that Wang never returns to his pre-foot injury form, we still know that we can win it all with our top 3 starters.
2. He would cost a butt-load of prospects in a trade. We would definitely lose either Hughes or Joba, maybe both, and we would most likely lose 2 out of AJAX, Montero, and Romine. We're talking about one or two potential quality starting pitchers, our center fielder of the future, and two great catching prospects, one of whom is being compared at the plate to Miguel Cabrera and Manny Ramirez when they came up in the minors (Montero).
3. We would be paying for what Halladay was, and not necessarily what he will be. This, of course, is always a concern when signing a free agent or making a trade. Halladay has been great over his career, so as I specified in point #2, he will cost a lot. The problem is that he will be 33 next year. Halladay has been very consistent over his career, but the law of averages suggests he will begin to decline sometime soon. This starts happening to pitchers, on average, at around 30-33 years of age. Halladay is hitting the end of that average, which suggests there's a good chance he will begin to decline. Sure, he might still be a very good pitcher until he's 40, but he's not going to maintain his dominance forever, he will slowly decline. Thus, my point: we will end up paying for how great he's been the past 6 or 7 years, but get someone less than that. If you want to know exactly what I'm afraid of, see the Randy Johnson trade.
4. We might have better options. Next year, there will be a slew of good free agent pitchers. First of all, Halladay himself will be a free agent, unless he gets traded and signed to an extension. If we wait until next year, we might be able to get him without having to give up our prospects. I personally feel more confident about going for younger pitchers of similar quality, like Cliff Lee, Josh Beckett, or Brandon Webb. I feel we would get more years out of one of those guys.