It’s not just Wallace that was a Democrat. So were the people that voted for him. Consider that in 1968, there were three candidates: Nixon, R; Humphries, D, and Wallace, I. In a three way race, the winner is the one who doesn’t have his vote split by the independent. Nixon, the Republican won because Wallace split the Democratic vote.
Plus, there were a lot of people who overlooked Wallace's stupid "gun in the school house door" stunt which the left used to define his entire career. The fact of the matter is that Wallace was probably the most racially tolerant white governor in the south during that particular era and he or his wife was elected and re-elected governor afterward with substantial help of black voters.
He also understood America's disgust with the tweedledum/tweedledee two party system long before anyone else of national prominence did.
By the 1972 Democrat primary season, it was actually a three way race between McGovern, Humphrey and Wallace. Wallace finished a mere 2.3% behind HHH, the top vote getter in the primaries. He won two states outside the south (Michigan and Maryland) and might have won more had his national campaign not have been ended by the bullet of an attempted assassin in Maryland.
It was Ronald Reagan some eight years later who was largely responsible for bringing the GOP back to its conservative mooring, a process which the RINO wing begin undoing with the election of Daddy Bush on Reagan's coattails back in 1988.