My opinions only:
1.) Ties to/association with Bush.
Things aren't going so great. Bush's approval rating, which can be loosely interpreted as a referendum on people's satisfaction with their current situation, is in the 20%. People aren't happy with what they've got now and they want something different.
2.) Lack of novelty.
McCain has been around the block many times and hasn't been able to close the deal. He's known and therefore not that exciting. If he were a truly exciting candidate, he would have been elected by now.
3.) Losing touch with what made him attractive/caving to pressure to move right.
McCain could have offered a very attractive option as a truly moderate, center-right politician. Unfortunately, either due to fear, pressure, or his actual beliefs, he drifted right during the campaign, alienating moderate voters.
4.) Palin.
She may actually have been a wash. Many found her completely repugnant and became very concerned about her actually assuming office given McCain's age. But others found her novel and attractive. She hit a nerve for a certain demographic (I'm remembering a picture of Spencer Pratt in a "Palin: Guns, God, and Glory" t-shirt)
That's my take on it anyway.