It certainly is true that neither party represents our interests. The whole Washington establishment has become a party unto itself in many ways. Just look at how Hastert stood up for Jefferson the other day on the FBI raid. Congress is looking out for itself, both collectively and as individuals. The only difference between Republicans and Democrats is that Republicans will take longer to destroy the country.
I'm not certain that the answer is a third party though. If the Democrats split up the Republicans will be strengthened and have no motivation to change. If the Republicans are split up then we will be stuck with Democrats. It's sorta like pick your poison at that point. One thing I am sure of is that is time to to start talking about term limits again. It's time to end the concept of a career politician.
On the other side, we'd have a "moderate capitalist" party, the DeWines, Lugars, Snowes, etc. That would be about 20 percent of the electorate, a little less than a majority of the GOP, and would include some Dems, such as Lieberman, maybe Bayh if he goes back to his roots.
Finally, there would be the "conservative" party, the pure of heart and mind, who under current voting patterns, constitute maybe 25 percent of the electorate nationwide, with a few states where we have a majority.
Of course, if you have 3 or 4 parties, under our system, a candidate with a plurality of 20, 30 or 40 percent could win the presidency. They could win congressional seats with less than 50 percent of the vote, too, if the 4 parties participated in all those elections. It could lead to situations where a party with 25 percent won the election, while, say, the moderate capitalist and the conservatives had a total of 50 percent of the vote combined. Unfortunately for them, they were not combined, and the leftist won.
Because of this situation, the natural tendency of our winner take all system is that factions form coalitions that coalisce into parties that reach a size necessary to be able to obtain a majority of the electorate. When one coalition of factions does this, all the other factions, the ones who are left out, tend to try to find common ground so that they, too, can have a chance a victory and to thereby achieve their policy goals. Thus, we end up with two parties and no more. That is the natural result of our "winner take all" system of elections in federal elections, and since most statewide offices have the same system, the 2 party system translates well to state governance as well.
There has been one main example of the emergence of a successful third party, and the issue that spawned that was slavery and its expansion to the territories. The Whigs, being a party heavy with midwesterners, borderstaters and mid-Atlantic states, tried to be "moderate" and would not take steps against slavery, which led to the creation of the GOP, which would not accept expansion of slavery. The main support for the GOP came from the New England states. It was North vs. South, with the states in between on the fence.
An aside: A similar absolute issue would be abortion in our time. We would leave the GOP in droves if it became a party of abortion, even if it put us in the minority. Immigration may be showing itself to be another such issue.
Lincoln was elected with something like 36 percent of the vote. When you have a President that has such minority support, he is naturally weakened in dealing with big issues. The civil war came, and by the end of it, the Whigs were gone and the two parties left were the Dems and the Republicans. Had there been no war, Dems and Whigs may have found some common ground, and we would still have had 2 parties, or the GOP may have been co-opted by the Whigs, but either way, the Civil War changed the equation and may not be a good example of how a third party could come to existence and work in our time.
Anyway, in every other instance where a prominent third party emerged, it gained votes and a few offices, but could not form a lasting third party. When their movements were successful, their issues were co-opted by one of the parties, and the party folded into one of the coalitions. (The progressive movement is an example). When their movements were unsuccessful (Larouche, commies) they remain a fringe group with a fraction of the vote for a few cycles, and gradually or quickly disappear.
There are a few examples of a one-man movement that can make a splash, but not form anything lasting. TR's Bull Moose Party, and Perot's party are two examples of that. Both resulted in the election of a minority president, Woodrow Wilson and Bill Clinton.
So, I guess the summary is this: Our system leads almost inexorably to two parties, and if you are not part of one you are unlikely to win office and have any power. It is simple game theory. If you are going to start a third party, it better have enough support to take over the party it replaces, not simply remove voters from it, because you will not accomplish anything lasting from splitting away, and will likely simply lose elections until you restructure your own coalition.
Parties do change from within, though, and that has to be the lesson people take from history. Republicans in the 50s were the country club guys. Conservatism has changed the Republican party at its core, the philosophical level. It has spread through the south and energized religious people and middle class citizens throughout the nation, even as it has lost many of the old country clubbers, this generation's limousine liberals.
Instead of splitting into several small parties, this new GOP cobbled together conservatives from the south who were dissatisfied with the Dem party, evangelicals, free-market Wall Street types, small government westerners, pro-military anti-communists, small farmers and a host of other groups, many of whom have beliefs that overlap. The Olympia Snowe wing of the party is a remnant of that old, pre-Reagan GOP, the New England patrician. Bush, being from a Connecticut family, has patrician roots and a Texas upbringing, and so he combines some parts of several groups(which is why we are upset with him on immigration).
There is no reason why the GOP can't continue to evolve, and strengthen its conservative tendencies, while maintaining a majority in its coalition. Over time, it will shed the Chafees, Specters and Dewines, and while we may lose a state here and there, we will eventually gain a Republican office that is more conservative than it was before. This can best be accomplished through primary challenges and the application of donations where they are most valued--with conservatives. We should also develop procedures for causing blowback against Pubbies who disappoint us, denial of committee posts, for example; creation of conservative watchdogs that point out the actions of RINOs (the Club for Growth, and its support of challengers like Toomey is a great example of things we can do. We need more such groups, and wield them skillfully). The caucuses in the Congress need to be tougher with their members--send the bad ones to basement offices.
These are the prescriptions for a long, successful majority that leads to adoption of our issues and a reversal of the Democrat's deconstruction of America. Oh, and stop Bush's immigration plan, too. That will end our majority right quick, as 20 million new Dem voters enter the electorate. Stop that plan, and maybe, just maybe a new party will not be necessary.