Understanding how and Martha Coakley lost in Massachusetts to Scott Brown isn't going to be much fun for Democrats, but it's worth going over some basics if they want to bounce back. And the lessons are fairly straight forward.
The population are fed up with Democrats doing nothing to enact substantive change. After a year in power, the banks still run the country, there is massive unemployment, and still a giant foreclosure crisis. This isn't to say that Obama has done nothing, but given his opportunity to shake things up, he has been somewhat of a let down.
In response to this, people get fed up and and vote in Republicans who claim to be reformers. In America, policy doesn't count for much -- It's about personal charm and clever marketing (we must remember that in America, a politician like George Bush was elected to President, twice). Scott Brown beat Coakley in what should have been a slam dunk contest because he is good looking, speaks well, and was given a good marketing strategy. Brown's platform of tax cuts and anti terror rhetoric will do little to change things in Massachusetts, and will most likely make things worse. But he tapped in to some populist anger, and beat Coakely in a close contest that will have massive ramifications on a national level.
Without a 60 vote majority in the Senate, Obama will not be able to pass healthcare legislation without going through reconciliation (essentially ramming it through), or completely repealing the need for 60 votes to pass anything. That means the past year has been a complete waste of time, and the watered down bill will have to be watered down again to the point where it really does mean absolutely nothing. It also means that the Democrats won't be able to pass anything else substantive (environmental bills, education bills etc) in the coming years without giant concessions to Republicans, who have shown no willingness to negotiate.
There is a small chance that Obama and the Democrats will use reconciliation or more extreme measures to pass a strong health care bill, but don't hold your breath. Democrats have shown an unwillingness to use bullying tactics in office, and they probably won't start now.
George Bush got things done because he didn't care what the opposition said. Obama seems to care what Republicans say, regardless of the fact that it is for the most part completely insane. And for that reason, nothing gets done.
If Obama wants to keep his Presidency, it's time to stop talking to Republicans, and just get on with it.