First Read considers the logic:
The best reason for Obama to be looking for a place in his cabinet for Clinton is simple: to get her out of the Senate. Just ask George W. Bush, Bill Clinton, and Jimmy Carter what it was like to have a once or future presidential rival in the Senate serving as a one-person Roman tribunal.
Remember how easily the press gravitated to John McCain in '01 or Bob Kerrey in '93 or Ted Kennedy in '77 to allow them to be one-senator judge/juries on Administration proposals? The upside for Obama putting Clinton at State (or even the Pentagon) is that it gets her out of the Senate and gets her out of the domestic policy debates. Also, one other thing to keep in mind if Clinton does end up at State, she'll be off the political circuit; it's considered unseemly to practice politics while serving in one of the big cabinet posts, especially at State or Defense. So this would mean no more Hillary on the stump for candidates, no more Hillary raising money, no more Hillary collecting chits.
(hat tip: Goddard)