Yglesias spells it out:

Palin isn’t the most formidable candidate out there, and in a very close election her flaws could easily deny the GOP the White House. And very close elections do happenthink how important the 2000 presidential election was in retrospect. But most elections aren’t that close, and if the fundamentals are strongly against Obamawhich they may bePalin will beat him.

I think the dirty secret of conservative Palin skeptics is that they think Sarah Palin would be a bad president.

She would also be terrible for down ticket races; Republican congressmen and senators should keep that in mind. Karl Smith expands on Yglesias's thought:

By my reading what has happened is that the conservative movement has outsourced its elitism to the media. Rather than simply say “This woman is unqualified and we will not support her” they say she’s unelectable and that the media will trounce her.