eWeek has a lot more details on why Sun turned down IBM's offer. Apparently, Sun's board , lawyers, and CEO were divided into two groups when it comes to whether or not IBM's offer should be accepted. A majority group led by CEO Jonathan Schwartz were in favour of the acquisition, but another group, led by co-founder and chairman Scott McNealy were against it. It seems as if the disagreements were quite sharp, and because of the stalemate, they decided to blow off IBM's offer.
It all broke because they thought the price offered by IBM was too low, but also because of a lack of assurances on IBM's end of providing full legal support for Sun in current and possible future anti-trust cases. For instance, Sun is currently in a court case with NetApp over the ZFS file system, and the US Securities & Exchange Commission will most likely investigate the possible IBM-Sun deal; the two companies would comprise two-thirds of all high-end data server sales.
Our favourite cuddly "people familiar with the case" have whispered to eWeek that the talks within Sun are set to continue to today, after being shelved for the weekend. There is a possibility that the IBM-Sun deal will still continue, because if it doesn't, a shareholder revolt could lead to lawsuits. Sadly for Sun, shares of the company have dropped 25% since they blew off IBM's previous offer, meaning IBM can certainly lower its price.