Kerry isn't so dumb (or, more correctly, those who might contribute to a Democrat Presidential candidate aren't so dumb) that he can't see that he can't be elected. He screwed up his '04 run, never answered his Swiftboat critics, never provided full and open review of his military records (as he promised), never lost his reputation as a flip-flopper, and spent the remaining 2+ years further tarnishing his own standing. A Kerry '08 candidacy was doomed, and not entering the race is just about the only rational thing he's done.
But, as John at Powerline notes (and I noted yesterday), Kerry's problem with how he crafts his message on Iraq is exemplary of the broader problems of the Democrat Party on Iraq. Nobody--not one--Democrat has a public vision of how to win in Iraq. Ignoring this question, in the hopes that it will all be blamed on Bush, is not the way to win an election.