I think Beltway people on both sides are surprisingly bad at, well, politics. They tend to view things through the concept of the political spectrum as dictated by the Villagers, unaware that people in the rest of the country, aside perhaps from political junkies, don't really see things that way. It isn't actually Cokie Roberts' world.
Back in the days when Democrats were DOOOOOMED to be out of power for 3000 years, or whatever, the basic liberal blog critique of Democratic politics wasn't that Democrats needed to move sharply to the left, though on some issues they should somewhat, both on the politics and the merits. The basic critique was that they needed to distinguish themselves from Republicans. "Not as evil as them" just wasn't quite compelling enough. Highlight the differences, rather than blurring them. Don't run from issues like abortion because voters already "know" you're the babykiller who's going to make everybody gay marry. Lead by showing leadership. Stop running against the party. Improve the brand.
Bush and this bunch of Republicans have completely fucked the Republican brand. Social conservatism (ban abortion and contraception, stone gay people) just isn't popular enough nationally, and they've (for a second time) destroyed the idea of Republicans as "fiscal conservatives."
Conservatism will be alive and well in the next Congress, as the blue dogs will find common cause with Republicans trying to resuscitate their brand and thwart an Obama administration. Wars and bailouts of rich people will still be free, of course, but money for sick kids will be "fiscally irresponsible." Our best hope is that Republicans fight to out-crazy each other enough to tarnish themselves enough that even the blue dogs might not want to get near them.