It takes 113 pages for the Congressional Research Service to explain budget reconciliation. I'll try to spell out the relevant rules in a paragraph. Basically, in order to prevent Congress from using the process for issues other than passing a budget, rules in the Senate (named after the fastidious senator from West Virginia) allow anyone to challenge any provision in the reconciled bill that is "extraneous" to the goal of dealing with taxes or entitlements. A 60 vote majority is needed to reject the point of order, which takes effect if that threshold can't be reached, thereby dooming whatever part of the bill to which a senator objected. The Byrd rule itself is fraught with ambiguities. The Senate Parliamentarian, Alan Frumin, would be asked to determine whether the provisions in question are subject to a point of order. Rules and precedents here are very complex, and there is certainly no "one answer."
One thing to know about the reconciliation process: it's not rare. In fact, it's pretty common, and it's been used for all sorts of things that might seem incidental to a bill dealing with budgetary matters.
But you can see why this uncertainty makes Democrats a bit wary of using the process. There's no telling what might not make it in the final bill, and even if something does get in, the provisions automatically sunset after five years, providing opponents a stationary target to try and delay their implementation. Given that points of order are, on balance, found to be germane, the legislation could end up looking like "Swiss Cheese," as Sen. Kent Conrad has said.
So the threat of reconciliation is very likely just that -- a threat. In theory, if enough senators are convinced that Harry Reid, Max Baucus and Conrad (who MUST agree to it, given his Budget Committee chairman's status) will use reconciliation to push through the health care "pay-fors," they'll give up the threat of a filibuster. Problem is, if the bill is discredited and unpopular, reconciliation may increase its illegitimacy in the eyes of the public, even though a majority of senators will have voted for it. This is one of those fairly icky contraptions you find in our republican form of democracy; a majority isn't a majority, and isn't even perceived to be a majority, until a supermajority can be found.
That said, Republicans who protest the reconciliation procedure ought to be ignored, especially if they happened to have voted for any number of reconciled bills over the years that have been somewhat extraneous to the process of getting a budget done. Judd Gregg protests too much. Reconciliation isn't "controversial." It's not a "nuclear option." It's another way of getting things done, one that still requires at least 50 votes (with the Vice President breaking the tie, if necessary.)
To sum, whether this works is as much about policy and practice as it is about politics. Some Republican senators say they'd like to see the insurance reforms split off from the rest of the bill -- they'd easily pass with 60+ votes -- and then deal with the Medicare expansion and deficit spending through separate legislation.
What cannot be predicted: if the bill does get split up, even though the insurance reforms are, from the standpoint of the reality-based community, major, Democrats will get credit for passing health care reform.
One reason why the White House is anxious about breaking the bills apart and/or reconciliation: keeping the good stuff in the bill makes it harder to vote against the tougher-to-swallow stuff.