If you're just trying to design a site for your own internal use, then you might consider passing "oob" as your callback URL? This will let the Yahoo! OAuth servers know to just return back the token verifier in their own webpage instead of trying to redirect to a callback URL. You can then grab that token verifier and manually pass it into your application. "localhost:8080" isn't really a domain, it's just an indicator to loop back to talking to your own computer. If you actually do end up wanting to have a public callback URL, then yeah, you're going to need a publicly accessible server with a public DNS entry.

Let me know if that doesn't make sense.