The Democratic Party isn't in trouble... they did well in the State Legislatures this year and all things (like the re-gerrymandering of Texas and the fact that the Minority Leader hams up the whole SF Liberal thing to avoid a primary challenge...) considered did well in the House... so at lower levels things aren't that bad.
The problem is the lack of any real organisation at national level, etc, etc, etc.
I agree on the state legislatures. The issue there is that most of the people on the state legislature level who are Democrats are at odds with what much of the national party stands for right now.
This will continue to hurt them in Senate races and at the national level in Red states or weak Blue states as long as the Republicans go with the successful tactic of nationalizing state elections (as they have in 2002 and 2004).
The House is so gerrymandered, any real major changes (barring a 1994-style event) are pretty much impossible until 2012. The GOP picked up four seats in Texas through the DeLay gerrymander. The rest of the country returned the exact same representation as before. Dems picked up a seat in Colorado and knocked off an incumbent in Georgia. GOP picked up a seat in Kentucky and knocked off an incumbent in Kentucky. Like I said "all things considered".
BTW the GOP didn't knock off an incumbent in Kentucky... they
did in Indiana though.
Poll
