As I understand it, New Orleans sits mostly at or below sea level south of Lake Ponchartrain, between Lake Ponchartrain and the Mississippi River. If the eye comes ashore east of NO, the north-to-south winds will push the lake water over the levees and into New Orleans. The winds will be less, but the flooding may be greater.
I believe the true "nightmare scenario" was a hurricane passing close enough to New Orleans to push water from the sea onto land, then sort of "spin" it over into Lake Ponchartrain, *then* push the extra water into New Orleans. That would require the eye to pass very close to, but just east of, the city. Which might happen...it's too soon to tell.
The other thing to remember is that if the eye passes a little ways east of NO, that means that Biloxi, Pass Christian, Biloxi, Mobile, and other places in Mississippi and Alabama will get the worst of the wind and storm surge. We've all been rightfully worried about the Crescent City, but if the track forecasts are right, the coast in Mississippi and Alabama is going to be scoured clean.
}:-)4
Go here for New Orleans worst case scenario:
http://www.nd.edu/%7Eadcirc/pam.htm
right click pictures; then play
devastating