I think it was a mistake.
If there's anything Bush should have learned by now, it's that any attempt to "accommodate" or "compromise" on his policies results in the Democrats ripping his lungs out anyway.
Now he's got a lukewarm nominee, and the Democrats will fight exactly as hard to nail her steaming hide to the wall as they would have if Bush had nominated the most strident hard-line conservative in the nation.
That, and demoralizing his base before 2006.