While I think it's entirely plausable for the Dems to pick Hillary, what happens then is the black vote--reflexively for Obama and the Dems--is lessened. It would be a repudiation of "America's Black President" by the party that claims to be for the black population of the USA. While a fair number of them would "hold their noses" and vote for the Dem anyway, there's also a fair number of them that would stay home, because their President had been dissed by the Dem establishment.
I've got a link to a story, that I'll post in a thread all its' own, that demonstrates another part of the Dems' problem with the 2012 election cycle . . .