Just read this article from Time Mag that suggested that a plea deal was in the works last week before the indictment of Libby came down where Libby would plead to some charges. The deal allegedly broke down because Fitzgerald wanted "serious" jailtime for Libby. Couple that with this post on the Drudge Report which suggests that Fitzgerald may call Cheney as a witness, and that Cheney will refuse to testify pursuant to Executive privilege, and you have the makings of what I predicted before - a presidential pardon in the works.
As far as I'm concerned, the only question is when does Bush do the pardon. Clearly, he has to wait until after the mid-term elections, since he looks so weak right now, and he's clearly dragging his party down, this would be a nail in the coffin. So, does he do it right after the mid-terms, before the new Congress convenes (this would depend on how the Republicans do in the mid-terms, I guess, because it would probably never happen if the Democrats retake Congress), sometime during the next Congress, or after the next presidential election and before he leaves office (again, this would probably depend on whether, God forbid, one of his toadies like Condi wins in 2008).
It seems clear that Libby is willing to fall on his sword to protect Cheney. Let's be real, is there any doubt that Cheney was intimately involved in the decision to leak Plame's name? Libby goes and picks Cheney up at his house every morning so they can drive in together. Libby is as close to a shadow president you can get without being assigned directly to the president, as opposed the VP. If Libby was willing to plead, but not to too much jail, it means he'll fall on the grenade for Cheney, as long as he doesn't have to sing for the Grand Jury against Cheney.
I have to think that a pardon has been either explicitely offered for playing along, or at least implicity offered. Does anyone think that Bush, the most famously loyal to a fault president in the nation's history, is going to let someone like Libby go down while he was pushing Bush's most cherished pet project, the overthrow of Hussein? C'mon now, who could really believe that.