A couple of things should happen now:
1) That player loses control of his team the rest of the season.
2) Add all the players he dropped back onto his team manually (ESPN gives you an option to make roster moves in the League Manager settings...Yahoo SHOULD have something similar if it's a LM league).
3) His team will be controlled by the commissioner the rest of the season. He will not make any pickups/drops (only should affect this week with byes) UNLESS an injury occurs at a position he needs to fill, in which case you will just pick up the highest-projected player from that position AFTER the rest of the league has a chance to let their waivers go through.
4) Each week, the commissioner will set the team's lineup with players that are projected highest on whatever site you're using. I have never used Yahoo FFB, but ESPN puts the projections right there and is pretty easy to figure out.
This, IMO, is the best way to handle it when a team owner needs a pacifier and drops all his players like that...we had the exact same thing happen with two teams last year, and this is what I did. They came back this year, but they've had their one strike, and if they do it again they're out of the league. I also put a paragraph in our league rules stating that from now on fines will be placed on teams that drop players that - by commissioner's decision - should not be dropped if the team was trying to continue winning from week to week.