Time would appear to be on Kaddafi's side, but it isn't. Kaddafi feels that if he can keep the rebels from expanding into western Libya, NATO support will wane (wars become more unpopular the longer they go on). But that support won't disappear quickly enough, as Kaddafi is under siege by NATO air and naval forces in Tripoli. Kaddafi has land access to Algeria (run by a pro-Kaddafi dictatorship) and, far to the south, Niger (which is not as pro-Kaddafi, but is not hostile either). The Algerian access is via desert roads, to the south of the Tunisian (run by anti-Kaddafi rebels) border. Kaddafi has control of Tripoli, and its' million residents, but not much else. Even many people in Tripoli are hostile to Kaddafi and there are armed rebels operating in the suburbs. But Kaddafi has thousands of armed and ruthless followers, including many mercenaries who will keep killing as long as they get paid. These, Kaddafi apparently believes, can be used to persuade the rebels to accept a ceasefire. The rebels also have problems policing and supplying the five million or so Libyans they are responsible for. Who wins this war depends a lot on the ability to keep food on the table and the lights on. Too many unhappy civilians makes a peace deal with Kaddafi more likely, and that would lead to the partition of Libya, and the continuation of Kaddafi's power, and appetite for revenge and terrorist mayhem. Everyone wants Kaddafi gone, but Kaddafi and his followers are ruthless and clever survivors. There won't be any easy victories here.
I think Khaddafi has a better chance of surviving this war than Strategypage does, apparently. I think NATO's will to continue the war is more limited than their rhetoric suggests. I think that international pressure from Khaddafi supporters will lead to a ceasefire before Khaddafi can be killed or his supporters break. So while I agree that the long run may be fatal to Khaddafi (assuming the coalition fighting Khaddafi holds together), I think the short and medium terms are favorable to Khaddafi. And if those trends win out, there will be a new long term trend of countries being willing to deal with Khaddafi for oil contracts.
The fate of Misrata may be what determines which trends determine the outcome. If Misrata falls to Khaddafi, a major reason for the rebels to keep fighting disappears. It would not be honorable to stop fighting while the highly visible rebel resistance holds the city. Yet losing the city would not cripple the core rebel area since the rebels could blame NATO for not doing enough to save the city's brave defenders.
Controlling Misrata also eliminates a major reason for Khaddafi to keep fighting by putting a major supply port for Tripoli back into action. And Misrata supplies a large body of effective hostages to leverage international "humanitarian" aid that will allow Khaddafi to survive by doling out that aid to supporters. Khaddafi will retain the option of pushing Misrata refugees to sea on a voyage to Italy to put pressure on European countries to allow aid in.
Misrata is also the last major reason for the NATO intervention. If that city goes, there is no visible civilian population to protect. And as the war so far has shown, it is difficult for NATO to sustain an air effort inland away from all their surveillance and reconnaissance assets.
Early in the fighting, I thought capturing Misrata should have been one of two priorities of Khaddafi's forces (the other was to secure the immediate Tripoli region and put down revolts in nearby towns) before the loyalists focused on the eastern front against the rebel areas there. Khaddafi struck east before nailing down Misrata and got his nose bloodied by prompting NATO aerial intervention without achieving their objective of putting down the revolt.
As long as Misrata holds, there is more of a chance that the loyalist side will break first--including though a lucky bomb hit that kills Khaddafi or even by prompting a ground intervention. Once Misrata falls, there is more of a chance that the rebel will to conquer all of Libya breaks and more of a chance that the international communities fragile will to wage war on Khaddafi breaks.
UPDATE: Rebels in Misrata have punched a salient out of their defensive perimeter to the west. While seemingly a good thing in that the rebels pushed the loyalists back in one direction, it doesn't affect the loyalist positions that threaten the port and airport of Misrata. If the rebels can push the loyalists back around the entire perimeter, that is definitely good since it could protect the city's port from artillery fire. But a salient alone could just be a point of vulnerability that weakens the perimeter by stretching out the rebel defenders and giving the loyalists a target to attack, pinch off, and exploit by driving through the opening created into the heart of the city. Or other parts of the perimeter might have to be thinned to handle the increased frontage, leaving those areas vulnerable to attack by loyalists.
