Well, Palin wouldn't have been the VP nominee, and Hillary probably would be the Democratic nominee.
I'd say Obama would hold off for 2012 or 2016 in this scenario.
I beg to differ. I still think Obama would run in this scenario, since Iraq was the hot issue in late 2006/early 2007 (when Obama announced his bid) and back then no one knew what the economy would look like in 2008. Thus, since the Iraq War still occurs in this scenario, Obama still decides to run in 2008. Hillary might have won the nomination, though, since the economy officially went into a recession in December 2007 and all of the primaries/caucuses were held after that date (and thus many Democrats thought Obama would win due to the poor economy and decided to vote for him). I think that if the economy was in good shape in 2008, many Democrats would have worried about electability more and thus decided to vote for Hillary in the priamries, giving her the nomination. In regards to Palin, you're probaably right that McCain would not have picked her for VP in this scenario.