First of all, 1996 was well before my political awakening, so I have a hard time comparing. But your scenario of the establishment nuking Sarah Palin is probably more likely than you're giving credit for. If Sarah Palin is the nominee, Obama wins in a walk. You would have a hard time finding a more dedicated liberal base under that scenario. So either she loses to Daniels, Thune, Mitt, or Huckabee, or the establishment nukes her (or some combination).
Plus you still have the problem that the Republicans and their policies are still what got us into the economic mess. People are tired of Obama blaming Bush for everything. But if you have a Congress pushing to re-enact the Bush policies of 2000-2006, that dusts off the argument quite a bit -- "I refuse to return to the policies that got us into this mess in the first place....".
About Obama, I think people overestimate how much his race played into his overall victory. Sure, it helped get out the black vote - and that can't be taken for granted. But I think a lot of white folks liked the way he spoke and they sensed that he was sincere, earnest, very smart, and willing to try something different. Plus Sarah Palin scared the beejeesus out of them. So when Obama runs again, it won't necessarily be "I'm black, give me another chance!". It'll be "I inherited a huge mess, I've worked very hard, change takes a long time to manifest itself, we're making great progress, let's do this again." Again, it'll all come down to the unemployment rate. I say <7 % and Obama is a two-termer.
If the Republicans take at least one House of Congress this year (very likely), they would actually have to come up with a few ideas. What are those ideas going to be? I mean, sure, they'll extend the Bush-era Tax Cuts. And Obama, I'm almost certain, will sign them into law. The deficit will grow, the economy will eventually get back on track and then 2012 comes along and the public will have to see how everybody did. If the Republicans spend the next two years trying to determine Obama's citizenship or repealing Health Care Reform, they will not be re-elected in 2012. On the other hand, if they get to work and do some meaningful things, Obama can very easily say "look what happens when we cooperate, why would you want to destroy that now?". The flip side is that if they do NOT spend the next two years trying to repeal HCR and determine Obama's citizenship, the Tea Party could well run its own candidate in 2012. I also think you're underestimating the Obama factor. When he gets out and campaigns, he can get younger voters, non-White voters, and disaffected hopey-changey types out to vote.
I think the worst thing that could happen for Obama's Presidency is to have the Democrats control the Senate 51-49 and the House 219-217. That would make the last two years look like patty-cakes and it would be under the banner of Democratic rule. In this case, divided government could be a good thing. The Republicans will have to begin taking some responsibility for the huge mess(es) they created. If all they do is cut taxes, try to raid Social Security, and go on endless Obama-hunting expeditions, they will not survive the 2012 elections. Conversely, if they do clean up the messes and the economy gets back on track, that will be a powerful argument to keep Obama in place.
I think the strongest GOP candidates are Mitch Daniels and John Thune. It's a matter of whether they can get their acts together in two years or not. Obama did it, but there ain't too many Obamas in this world. I think Romney would have a hard time in a gloves-off national campaign. There are just too many versions of himself to play against besides the fact that he looks like something you would have to re-boot occasionally. And then there's the whole creepy Mormon thing. I just can't see Huckabee going national. Foremost, the GOP big-business base just wouldn't have any of it. Second, he strikes me as someone whose views aren't terribly well-developed and if he developed them any further he'd immediately see that what he believes just doesn't make any sense. I think this would come across in a national forum.
Overall, Obama's fate in 2012 is going to rest with the unemployment rate more than anyone the GOP can nominate. If we're looking at 9% UE in 2012, Sarah Palin could well be our next President. If UE is 7 %, I think Obama has a good shot. If it is <7 %, I think he's a lock.
I'm of the opinion (after a long, hard pull on my hope bong) that it takes more than 18 months to undue a 30-year credit bubble which floated consumer spending even though real wages have been flat or declining. If these economy is going to be remade (and it is), I'd rather have Obama calling the shots - even with Geithner whispering in his ear - than Boehner, McConnell, Palin (God help us), Romney-bot, Bush, or practically anyone else you can come up with.
Tough to outdo this figure (from CalculatedRiskBlog):
and I just thought he was a Kenyan Muslim Fascist Communist Socialist Anti-colonial Anti-business Community-organizing arugula-eating pointy-headed former law professor. Now it turns out he can't even freestyle. It's worse than I thought.