If Watergate had ended up doing the Republican Party even more damage than it did, I could see it fracturing and the small government Republicans largely ending up in the Libertarian Party for 1976. But even in that eventuality, while Goldwater might join the Libertarian Party, I can't see him being the party's standard bearer in 1976.
I've got to disagree, Ernest. If anything, Watergate was the event that sparked a generation of cynicism about the federal government, helping small government Republican Ronald Reagan eventually suceed with his brand of politics. Watergate was bad for the GOP on the short term, but a goldmine for them in the long term.