This is no surprise to me. Count on McCain to say something controversial at the Republican Convention unless GWB repudiates the SwiftVets. This was in the plan for a while, I'd guess.
There's a correct way for George Bush to play this-- i.e., distance himself from the ad while drawing attention to it as only an incumbent President can.
He should call apress conference and say something like, "Recently I have been made aware of some ads attacking Kerry on the basis of his actions in Vietnam. While the charges they make are quite serious, I believe that Mr. Kerry's record in the Senate is more pertinent to what kind of president he will be. There are plenty of reasons to oppose John Kerry without dredging up painful memories of our experience in Vietnam." etc. etc.
-ccm