Saying No meant voting against the economic update, and since it was a confidence vote, that meant voting out the Conservative minority government. There is no other way to do it. But instead of just waiting till the vote and kicking out the government, thus triggering a second election in less than two months, they did the responsible thing and decided to exert pressure. They (1) announced in advance that they wouldn't agree to the update, giving the PM time to back down; and they (2) said they would form a coalition government so that an election would not be needed.
Talking about this as Liberal opportunism and Dion making a power grab is nonsense. Dion had announced just weeks before that he didn't want to be part of a coalition. It did not provide any benefits for the Liberal party and it was full of risk. The Liberal party took on the challenge of a coalition because it was the only responsible reaction to Stephen Harper's economic update.
Michael Ignatieff has never been a proponent of the coalition and now appears to be backing off. The question is whether he has other means to keep the PM in line, especially in his January budget. Is the threat of a coalition enough, or have the public opinion polls removed that means for exerting pressure?
Harper's current appointment of senators is puzzling and I haven't found any commentator who understands what he's up to. The most obvious explanation, which may or may not be true, is that he's playing his favorite game, "Dominant Dog," and letting everyone know that he won the scrimmage. Sort of like, after emerging victorious from a fight, the top dog pees on the loser. By doing something that constitutional scholars think is suspect during this sort of prorogation, he is demonstrating his power.
Another explanation for his bizarre behavior is that he is scared he'll lose the budget vote, and is shoring up support - support for his party, his leadership, or maybe even his career post-politics. Neither explanation seems likely. With Harper, we have a national leader whose ego, arrogance and adherence to extremist ideology transcend the rational.
Update: Chantal Hebert explains the senate appointments as being unrelated to the current crisis, and something he signaled he would do prior to this.