This election will be about competence, not ideology.
(Oops, on 2nd thought, maybe that's not a good quote to bring up...)
However, polls show that more Americans believe that Bush is too conservative than believe that Kerry is too liberal.
And Dukakis was actually right, ideology certainly isn't everything. It helps to be a centrist, but having strong convictions is important too, and ultimately the election will be a referendum on the incumbent and his performance. As long as Kerry is not made out to be an idiot, then whether he wins or loses is mostly dependent on Bush and the perception of how things are going in the country. The most important numbers to watch are the question about "Is the country going in the right direction or is it off on the wrong track?"
Carter tried to do that to Reagan, paint him as too extreme, and it almost worked. He led most of the campaign, right up to the end it was still very close. Then Reagan pulled ahead when voters started realizing that they weren't better off than they had been 4 years before (although things hadn't been that good 4 years earlier either, in fairness to Carter). Voters care more about results and performance than they do about ideological labels.
Bush needs to run a positive campaign to win, he can't win by just attacking Kerry. Republicans liked to say that Dean couldn't win with just a negative campaign...well the same goes in reverse, Bush can't win with just a negative campaign either. At some point the administration will have to defend their record; even if Kerry is perceived as liberal he will still win as long if the voters are dissatisfied with Bush.
It's silly to suggest that a Massachusetts liberal can't win. If a Texas conservative can win, so can a Massachusetts liberal. The main reason that liberal Democrats lost in the past was not because they were too liberal, but rather because conditions in the nation were not favorable for their party (Humphrey, McGovern, Mondale) or they ran a really bad campaign, failing to respond to attacks (Dukakis).
Nice analysis. I would even argue that Dukakis was unlikely to win as the country was still quite satisfied and Bush was a near incumbent, although that wasn't enough to get Gore into the oval office.