Scooter gets commuted. Libby's not on the lam. Bush decided not to pardon, but to commute Lewis Libby's sentence.
A commuted sentence basically says, "You're guilty, but you need not go to prison."
The original sentence, 30 months in prison, is on the books, but, in essence, completed, or, rather, deemed unnecessary.
Politically, this won't hurt or help anyone but Libby. Hillary Clinton, Barack Obama will not gain from this. They cannot say, "Republicans are no good because of Scooter Libby." The impact will be forgotten by November 2008.
A lot of jabbering on talk shows will go on, but, any president knows controversial decisions made over a year before an election are inconsequential.
Republicans will not be hurt either. Any candidate worth his public relations salt has steered himself away from George Bush. They may agree with a Bush decision, like the Iraq War, but, his name will not be emphasized. George W is not running for re-election, and he, himself, is just doing what presidents do. Bill Clinton did this, and, famously, Gerard Ford did it with Nixon. No one remembers the Bill Clinton criminals, and no one will remember Libby.