I thought I might comment a bit on Markos' "libertarian democrats" concept since, technically, abstract political theory is actually what I know about. But let me start off with a little political analysis. Insofar as we're talking about attracting libertarian voters, I think the case that libertarians should vote Democratic in 2006 is ironclad. A Pelosi-led House of representatives, and to a lesser extent a Reid-led Senate, would provide more of an obstacle to the Bush administration's imperialist instincts than the reverse. Either would offer some oversight of the executive branch and to some extent curb Bush's taste for gross abuses of power. Neither would really be in a position to enact any grandiose economic policy plans. So Q.E.D., as I see it. For the future, though, it's just going to depend on circumstances.
Meanwhile, I don't see any reason to believe it would be smart for a major political party to deliberately aim at the votes of some libertarian constituency. The reason is that, to a decent first approximation, about zero percent of the electorate is primarily motivated by a principled opposition to state coercion. We're not literally talking about zero people, I know some of them, and some write blogs, but it's genuinely a rounding error in the scheme of things. You do have some people who adhere to the Economist-style center-right politics of the American elite consensus, and this view has some similarities with libertarianism, but this genuinely is an elite consensus voting bloc rather than a libertarian one. It's also not seriously accessible to the Democrats over the long-run because a core element of the consensus is a fairly deep-seated loathing of progressive activism and progressive activists. It's worth understanding that, at the end of the day, there's much less libertarianism in American society than people sometimes think.
Similarly, it's often said that the interior west manifests a libertarian or proto-libertarian politics. I see, however, very little support for this view. We're talking about a portion of the country that derives its economic viability largely from huge levels of subsidy from the rest of the country. From the Universal Service Fee that makes telephones in the rural west cheap, to the way highway money disproportionately flows to sparsely-populated states, to agricultural subsidies and protectionism, to cheap exploitation of natural resources (lumber, coal, metals, grazing) on federally-owned land, these are people who very much enjoy sucking on the federal teat. A principled libertarianism would sell horribly in Montana. It is true that Jon Tester is cutting ads about the Patriot Act that get Jim Henley hot and bothered but this is on a limited domain of topics.
More to the point, what Tester is really appealing to here isn't libertarianism, as such, but an American self-conception and rhetoric of rugged individualism. This certainly is a sentiment one tends to see in the West. The dense living conditions of the coasts naturally incline people toward a sort of gut-level collectivism and fear of chaos that you don't see in the West. This is an important phenomenon, since even though it's geographical and demographic range isn't what it once was, it's deeply entrenched in the broader American political tradition so it resonates at least somewhat everywhere.
And I heartily agree that this is something Democrats and liberals ought to try to do better to tap into. Our best shot at it, however, isn't to become "more libertarian" but to simply run with the somewhat tired positive freedom agenda. There's a long tradition, dating all the way back to John Stuart Mill's personal trajectory, of seeing modern -- i.e., egalitarian -- liberalism as the appropriate successor-ideology to what was valuable in classical liberalism's ideology of negative liberty. The Morality of Freedom, on this view, requires people to not merely by free of formal constraint but to have the actual capacity to practice autonomy and self-creation which, under contemporary circumstances, requires some level of state provision of public goods and social insurance.
The pioneering German social democrat Eduard Bernstein, to whom "liberal" meant "libertarian," wrote "with respect to liberalism as. a great historical movement, socialism is its legitimate heir, not only in chronological sequence, but also in its spiritual qualities, as is shown moreover in every question of principle in which social democracy has had to take up an attitude" and that "The aim of all socialist measures, even of those which appear outwardly as coercive measures, is the development and the securing of a free personality."
Proper libertarians have all heard this line of reasoning, and they disagree with it, which is what makes them libertarians. For electoral purposes, though, the key issue isn't serious ideological libertarians, but simply people with a very autonomy-oriented emotional makeup. This way of framing egalitarian liberal politics has some reasonable chance of succeeding at persuading people of that sort. But it isn't libertarianism, it's simply the orthodox egalitarian view of how to understand egalitarianism.