Oregon is not a "blue state" - we need to drop that term. It leans Democratic on both national and state levels.
It isn't going to vote for a Republican anytime soon and it's not really considered a swing state.
Smith has an approval surplus of over 20 points. That's easily enough to beat even a semi-popular former Governor.
Smith's approval rating hovers between 50% and 55%, which is hardly unbeatable in a Democratic-leaning state, especially against a popular former governor who would have no problem with name recogntion. The Democratic party would be doing itself a huge disservice if it doesn't seriously challenge Smith in 2008.
Smith is not nearly as conservative as you make him out to be. He is rather liberal on gay rights and the death penalty.
Those are very much secondary issues that are little more than distractions from core issues. On core economic issues, Smith is extremely right-wing and votes in lockstep with the Bush administration.
He votes less party line than most Republicans.
Maybe you're right. He only votes party line 95% as opposed to the Santorum wing, which votes with Bush/Rove/Delay 99% of the time.