Barak was OK as Chief of Staff and he's definitely moved to the right in his views since losing the election to Ariel Sharon. Olmert has to replace Peretz from Labour in order to keep Labour in the coalition. Of what Labour has to offer Barak is probably the best choice. The only other viable choice would be Binyamin Ben-Eliezer.
Personally, I'd rather see Olmert bring Likud into the coalition and jettison Labour if need be, but that won't happen. Bring back Dr. Moshe Arens as DM would be appropriate for the current situation. Israel needs someone tough and experienced in the position. Barak is at least experienced.
Personally, I want to see Bibi or someone that has spine, smarts and understands what is going on and won't kow-tow to Iran, Hamas, Abbas, Hezbullbleep, Condi, Bush, Hillary, the Dems, the UN or anyone. I would not trust Barak any more than I'd trust Olmert or his crew. Bibi is not perfect, but Israel's Daladier (Olmert) has got to go; he'll sell Israel down the river even more the longer he's in power.