Palin is giving the kind of lift, energy, shock, attention, interest, etc. that Hillary would've afforded Obama. He chose against it (can't blame him, really), and McCain pounced.
Now McCain has the controversial/exciting ticket, and Obama has............Joe Biden. Seriously, if Obama had picked Hillary, McCain couldn't have responded with Palin. He would've had to go with Mitt or Pawlenty and he'd be getting crushed right now in polls. No way Romney or Pawlenty would've energized the Republicans in this way.
I still think Obama will pull this out, but if he doesn't, we can safely point to the last two weeks as the beginning of the end.