I agree with you, Republican prospects for '08 are very bleak. The chances are that the Democratic candidate will take the Presidency (out of the "Big Three", I personally support either Edwards or Obama, Clinton is too much of a throwback to the triangulating 90s), and doubtlessly the Democratic Party will also increase its majority in Congress.
The latter is almost a certainty--unless something catastrophic happens in the Middle East, as this 110th Congress can very easily become much more popular than the 109th, which was, quite frankly, pathetic (Republicans and Democrats share the blame). As for the Presidency, although a Democratic victory is probable, it isn't assured.
Even so, the Republican contenders aren't very promising : I don't know about the GOP primaries, but it doesn't look good with respect to the general election : Giulani doesn't have much substance beyond the 9/11 Mayor story, if he even gets past the primaries (Giulani in drag, anyone?); McCain isn't really the maverick he claims to be, and supports this whole escalation in Iraq; Brownback could be the "surprise candidate" in the primaries, but he doesn't stand a chance in the general election; Mitt Romney has his moderate Republican credentials, but he probably won't get through the primaries anyway.