Nice article from Real Clear Politics on the Obama surge. He discusses exactly why Hillary has peaked, and why he thinks Obama will continue to gain ground.
But he also emphasizes the one real drawback for Obama as a general election candidate: Barack is an old-school liberal through and through. Right now, it's Democrats vs. Democrats, so this isn't brought to the forefront. But Obama has a more liberal voting record than Hillary. Last I looked, he had a more liberal record than any candidate but Kucinich. If it were to come to a general election, the Republican candidate would bring up the voting record again and again.
There are some of us Republicans who are willing to look past Obama's liberal-ness for one reason or another. But the truth is, in a general election, it's going to be tough for Obama to pull swing voters with a background that liberal. On the other hand, Hillary is so incredibly divisive, and the Clinton name so polarizing, that she's certain not to pull any swing voters, either. If the GOPs go with the moderate candidate, that can appeal to the middle, they may be able to pull the presidency out, even in spite of Bush's last seven years.