I think it makes some sense, (she hasn't worked in Washington, she's a female, she's a staunch conservative), but I think the McCain camp underestimated the amount of negative attention Palin's issues would bring to them.
The smart move, IMO, is to always pick the vice presidential candidate who isn't going to endanger any of your target demographics. I think McCain might have overestimated the draw that a VP candidate has on voters, and as a result figured the positives would outweigh the negatives.