Crain's Greg Hinz on the maneuvers surrounding Obama's soon-to-be-vacated Senate seat:

If I read the smoke correctly, [Valerie] Jarrett backed out of the Senate derby at least in part because G-Rod overplayed his hand, insisting that Mr. Obama more or less publicly request the favor of a Jarrett appointment. Mr. Obama, who’s not about to seek favors from a governor who is under investigation in a federal corruption probe, ended the boomlet.

While it is all smoke at this point, Hinz's take sounds about right. 

Using backchannels and leaks, the Obama camp appeared to signal last week that the president-elect favored Jarrett as his successor.  Blagojevich then spooked them somehow, either by asking Obama to formalize the request (as Hinz suggests) or trying to get something else in return.  Regardless, Obama backed away.  He announced he wanted Jarrett with him in the White House, then Jarrett withdrew her name from consideration.

By the way, if Blagojevich did press the president-elect behind the scenes, you can be sure there are a lot of Obama allies who are upset with him right now.

Hinz goes on to suggest that none of the other potential Senate replacements are "as qualified" as Jarrett (not sure I agree) and finally wonders if Blagojevich will "return Obama's hardball with a soft lob." Read the whole thing to find out what that means.

UPDATE (5:54 PM): From Lynn Sweet:

Valerie Jarrett will be named at the senior advisor and assistant to the President for Inter-government relations and Public Liaison in the Obama White House. I reported in the Thursday Chicago Sun-Times that Jarrett, a confidante of President-elect Obama and wife Michelle, was headed towards a senior White House position.