I agree, sadly, with much of what Krugman is saying here. The Democrat's ideological mushiness and timidity is in fact a major pet peeve of mine and I've written about it repeatedly in this space.
But there a few mitigating factors to consider.
One is that in most surveys, respondents are about twice as likely to identify as conservative as liberal (40% to 20% on average) and this self-identifying trend predates Reagan's campaign or presidency. So this is the lay of the land most Democrats face. I would argue that Democrats need to do a better job of rehabilitating the liberal label, but that's probably a post for another day.
Second is that the 1980 Reagan and 1992 Clinton comparisons are not equivalent. The economic and international environments were more severe in 1980 than 1992, leaving Reagan a better opportunity to rework the political landscape.
There's also the matter of the structure of American politics, which in both elections was shaped by a Democratic Party that still had a sizeable national presence in the South. The 1994 elections largely eradicated this feature of American politics. But again, as with the economic and international environments, Reagan was on a lot safer ground in many respects.
Finally, the 1994 election results came about largely on the basis of the Republican's depiction of Clinton as a radical liberal. Clinton's first two years were fairly bold ones--he attempted to allow gays to serve freely in the military; with Hillary he attempted an overhaul of the health care system to provide universal coverage; and he engineered the passage of the deficit reduction bill, which among other things, raised marginal tax rates. Similar to George W., Clinton stood accused of having run as a moderate New Democrat but as having governed as a crazed liberal wacko from San Fran.
The upshot of all of this is that there are reasons for doubting that, despite the country's apparent disapproval of a Republican president, we are on the cusp of a liberal revolution. The structure and geography of American politics makes such change, or at least the duration of such change, very difficult. Add to that the racial issues already affecting the campaign, and Obama's "triangulating" is somewhat understandable.
At the same time, mostly because he is an economist, Krugman overlooks many of the fields in which Obama has sounded pretty distinctly liberal tones, especially in regards to foreign policy in Cuba and the need to change, not just the tactics, but the underlying basis for American imperialistic policies around the globe and in the Middle East.
So, with Krugman, I share more than a little concern with any rhetoric that seems to give up the battle by trying to "transcend" ideology (remember Dukakis?). But Obama in many ways does represent a significant ideological departure from the norm. Maybe this will bear fruit in an Obama administration and maybe not. But it's pretty safe to say he's a better ticket to that kind of alteration than Hillary (or Biden or Bayh) would have been and certainly a better bet than John McCain.