I don't think Palin's as polished as she'll need to be to run in 2012. She should have done better in the debate with Biden, and she needs to be faster on the draw with a hostile media. One too many "deer in the headlights" moments when she's being interviewed.
Having said that, I think her small government conservatism is an excellent litmus test, as you describe it. She gives good speeches as well.