There is an informative back and forth going on between Josh Marshall and Steve Gilliard (with the added input of Atrios) on the importance of the Connecticut Senate race. See also here, here and here.
For what it's worth, I'm with Steve and Atrios. The defeat of Lieberman is extremely important and growing more so as Lieberman's campaign goes on. Steve's arguments are all on point, I just have a few things to add. The most important thing for the Democrats to do, both for the country and for the party, is to strike a clear and distinct difference between them and the policies of the Bush administration so as to hold the administration accountable. This Lieberman is totally opposed to doing, and by staying tied to the Democratic party he makes it very much harder for the Democrats to do this.
The analogy that I think best illustrates the political process as the public expects that process to be carried out, is a trial. The Democrats are then counsel for liberalism and the Republicans are counsel for conservatism. The two counsel are expected to put forth their cases, singularly favorable to their 'clients', in a forceful, direct and clear fashion. The Democrats adoption of 'triangulation' might have served well to better select the 'clients' they would support, but it has since morphed into a plan to take a position halfway between your client and opposing counsel's client. This, not surprisingly, turns out not to work well. The Democrats need to get back to advocating for progressive positions. Joe Lieberman, however, is an absolute, unswerving proponent of taking a position between that of his client and that of his opponent's in all cases. It is a surefire path to failure.
But consider after the election. Joe Lieberman is making it perfectly clear that he feels free to sabotage any legislative program devised by the Democratic caucus if he does not like it. Having a Senator of that mind set will make it nearly impossible for the Democrats to have success even if they do control the Senate.
Having said all that, there is room for serious debate as to how much exactly we dedicate resources to this races. Even as important a race as CT is, it is still possible to dedicate too much time and money to it and too little elsewhere. However, Lamont v. Lieberman is definitely not "a carnival sideshow" nor a "distracting spectacle."