Palin needs to be demythologized sooner rather than later. The McCain campaign can and will attempt to blur the distinction between personal attacks and legitimate, substantive criticism of Palin's record, but that approach will become increasingly transparent the more indiscriminately it's used. Cogent, fact-based critiques of her political doings will likely shift the attention from the more gossipy fare that the McCain campaign is attempting to falsely associate with Obama.
The Obama campaign has thus far been alert and quick to respond to attacks and distortions; now isn't the time to drop the ball. Palin is precisely the reverse of the repackaged reformer that McCain is trying to foist on us, and the Obama camp needs to put out an ad focused particularly on her abuse of the earmarks system as mayor and her pro-"Bridge to Nowhere" gubernatorial campaign. Highlighting the fact that Wasilla, during Palin's time as mayor, repeatedly made McCain's earmark shit list wouldn't be a bad idea. The reformist veneer adopted by McCain/Palin needs to be stripped before it has time to set, so to speak.
This will also have the collateral benefit of highlighting the McCain campaign's refusal to let Palin anywhere near the media, outside of tightly scripted events and controlled, friendly environments. She'll be forced to defend her record, or look weak for failing to do so.
If Obama's intention is to take a hands-off approach and let the hype run its course, it could prove to be a huge miscalculation. I think this is especially urgent now that it has become increasingly apparent that the media is being cowed by the McCain campaign's bullying, and Palin's lies and self-distortions are being discussed infrequently and in what seems a whisper.