After some consideration, I think that the best thing that could happen for Republicans going into the 2008 presidential election would be for the Democrats to take control of the House.
As it stands now, the Republicans control all three branches of government. If the Dems take control of the house, it will be easier to remind the voters what Democrats are like when they govern. Of course, this will depend on whether a traditional Republican gets the nomination and can distance himself from Iraq.
Interestingly, the administration has tried to do all it can do to focus the electorate on these traditional Republican issues in this election cycle -- realizing that if the election is about Iraq, it is not a winning issue. The problem is that this administration forgot what the traditional conservative agenda is.
There is an interesting piece in the American Conservative magazine that you may want to read.
American Conservative Magazine: Just say "no" to Bush