Those of you drawing all sorts of dire conclusions from this ruling might want to review the actual decision instead of a short and somewhat misleading article about it.
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=03-923
Here's an excerpt:
'Here, the initial seizure of respondent when he was stopped on the highway was based on probable cause, and was concededly lawful. It is nevertheless clear that a seizure that is lawful at its inception can violate the Fourth Amendment if its manner of execution unreasonably infringes interests protected by the Constitution. United States v. Jacobsen, 466 U. S. 109, 124 (1984). A seizure that is justified solely by the interest in issuing a warning ticket to the driver can become unlawful if it is prolonged beyond the time reasonably required to complete that mission. In an earlier case involving a dog sniff that occurred during an unreasonably prolonged traffic stop, the Illinois Supreme Court held that use of the dog and the subsequent discovery of contraband were the product of an unconstitutional seizure. People v. Cox, 202 Ill. 2d 462, 782 N. E. 2d 275 (2002). We may assume that a similar result would be warranted in this case if the dog sniff had been conducted while respondent was being unlawfully detained.
'In the state-court proceedings, however, the judges carefully reviewed the details of Officer Gillette's conversations with respondent and the precise timing of his radio transmissions to the dispatcher to determine whether he had improperly extended the duration of the stop to enable the dog sniff to occur. We have not recounted those details because we accept the state court's conclusion that the duration of the stop in this case was entirely justified by the traffic offense and the ordinary inquiries incident to such a stop.' . . .
'Official conduct that does not "compromise any legitimate interest in privacy" is not a search subject to the Fourth Amendment. Jacobsen, 466 U. S., at 123. We have held that any interest in possessing contraband cannot be deemed "legitimate," and thus, governmental conduct that only reveals the possession of contraband "compromises no legitimate privacy interest." Ibid. This is because the expectation "that certain facts will not come to the attention of the authorities" is not the same as an interest in "privacy that society is prepared to consider reasonable." Id., at 122 (punctuation omitted).' . . .
'This conclusion is entirely consistent with our recent decision that the use of a thermal-imaging device to detect the growth of marijuana in a home constituted an unlawful search. Kyllo v. United States, 533 U. S. 27 (2001). Critical to that decision was the fact that the device was capable of detecting lawful activity . . . . The legitimate expectation that information about perfectly lawful activity will remain private is categorically distinguishable from respondent's hopes or expectations concerning the nondetection of contraband in the trunk of his car. A dog sniff conducted during a concededly lawful traffic stop that reveals no information other than the location of a substance that no individual has any right to possess does not violate the Fourth Amendment.'
--end of excerpt--
The guy was lawfully stopped, and while one officer wrote up his warning, the other officer walked the dog around. The officers didn't detain the guy for any longer than was necessary to write his warning. The dog alerted at the trunk of the car, where (a) there's no expectation of privacy and (b) the only information the dog provided was about the presence of an illegal substance. (I don't like our drug laws but that's not the issue here.)
Had the stop been unnecessarily prolonged, or had the officers used a search method that could have revealed genuinely private information, the Court would have ruled the other way (just as it has done in other cases).
(ps: Thanks for the backgrounder)