Calling for an end to 527 advertising is (politically) OK but Bush made two mistakes here. First, he should not have said that Kerry should be proud of his service. This was unnecessary and does make it seem like he thinks the sbvft are wrong. Second, he should have said that, in his opinion, these controversies about what may or may not have happened 35 years ago are not very important and what is important is what the president for the next four years will do. The Bush campaign should continue comparing his and Kerry's public records and achievements and policies. This is highly favorable to Bush since Kerry doesn't really have any.
Of course I also think the sbvft will and should continue their ads.