Martial law is only supported when the civilian authority collapses. What you cite is a medical problem within civilian control. Military patrols would be appropriate only on the border in case of quarantine, not internally.
But what Mr. Bush envisions is not such a dramatic scenario. He proposes a military response to the threat of bird flu. Beware of the military response. Once in place it can be awfully hard to get rid of, and it can metastasize.
Also, what the President seems to mean, by the wording I heard, is the feds gong in without the governor's, or acting governor's, express invitation. That, my friend, is very dangerous. People die and more people are born, but military control, by it's very nature, can make the prospect of dying less important.
That is not my understanding of what he is requesting. And certainly if the locals could handle the response, it should be left to them. I just don't think any locale could handle something like this on their own.
You might try reading Clancy's "Executive Orders". It deals with a coordinated biological attack, but the scenario would apply to a natural pandemic. "White Plague" by Frank Herbert is also a very chilling worst case scenario.