At this point, there's no doubting that the Iraq War is an issue that helps Democrats and hurts Republicans in the 2006 elections. You can see it in the polling on which party people trust to do better on the war -- the last year's polls show people consistently picking the Democrats. September 2004 was the last time a majority of Americans thought the war was worth fighting. Probably the neatest piece of polling comes from New Jersey -- when you mention Iraq, the Democratic candidate's advantage goes from one point to eight points!
Things have, in their slow and steady way, changed a lot between 2003 and now. It's reasonable to extrapolate these trends forward to 2008, because the mechanism that drives them will most likely remain intact. Iraq is deteriorating and Americans are slowly becoming aware of that. I'm pretty confident that in two years, whether it was right to go to war in Iraq will be a more divisive issue within the Republican Party than among Democrats. Already Michael Steele has been talking down the Iraq War under a bizarre veil of faux-anonymity.