It appears that the Democratic Party has for a long time, existed as a coalition between liberal and conservative wings (or, if you like, progressive and corporatist wings.) Since Reagan, policy on major issues—war and peace, banking, and so on—has been dominated by the conservatives, while less pressing issues (science, environmental policy, and so on) and public relations have been dominated by the liberals. In the Congress, the Senate Democratic caucus has been dominated by the conservatives while multiple House Democratic caucuses exist, with the House Democrats predominantly but not entirely liberal. The public face of the Democratic Party has been liberal, since the public is to the left of the conservatives. (See, for instance, The Progressive Majority.)
Now, however, a major issue—health care—has come to the fore. The Democrats have split right and left, and the public has become aware that the conservatives (who do not have the support of the majority of Democrats) have been making decisions on major issues which affect their lives. The Senate Democrats, after much agony, managed to agree on a business-friendly plan, while the House passed a plan somewhat to the left of that. Now the Senate leaders are afraid they will be unable to deliver their plan to their corporate sponsors, while the House leaders, looking at their loss in Massachusetts, know that if they pass the Senate plan unmodified they will be voted out.
It is difficult for me to see how the Democrats can rebuild their coalition. Its right wing and its president have betrayed it, and the party leadership will have a difficult time persuading most Democrats (who, remember, are well left of the conservatives) that the party represents them.
[Minor typographic changes made on 2010.03.07 and 2010.03.21]