From an AP article (via The Hedgehog Report):
"Under state law, the vacancy on the ballot will be filled by Republican voters in a primary. GOP officials said they hope to clear the field for Joy Padgett, a state senator.
. . .
Padgett faces a primary election under Ohio law that requires a primary if a candidate withdraws or dies more than 80 days before a general election. James Lee, a spokesman for Ohio Secretary of State Ken Blackwell, said his office was consulting its lawyers to determine how to proceed. No Republican has come forward to challenge Padgett."
I have no idea what would happen if Ney drops out 79 days or less prior to the election.
If Ney drops out in-between 79 and 76 days before the primary, the Republican party can essentially pick his replacement as long as it is done before the 76th day before the elections.
After 76 days before the election, the law is not clear, though there is nothing in the Code forbidding a candidate from withdrawing, however there is no mechanism for the party to nominate a candidate for the seat. Chances are that it would go to the courts.
August 07, 2006 In OH-18, "Sore Loser" Rule Complicates
Washington Wire reports that an obscure Ohio law known as the "sore loser rule" may derail Rep. Bob Ney's (R-OH) desire to have State Sen. Joy Padgett (R) replace him on the ballot in November.
The rule prevents a candidate who loses one primary to run again in the same election cycle. Padgett was the running mate of gubernatorial candidate James Petro (R), who lost to Ken Blackwell (R) in the primary earlier this year.