As this post first predicted Saturday, the news to come out of Iowa would soon revolve around direct engagement by Barack Obama with John Edwards.

It started Saturday over health care and escalated today when Obama, campaigning in Spencer, challenged Edwards’ U.S. Senate record in confronting special interest lobbyists.

Obama said “nobody in this race” has done more to reduce the influence of lobbyists in Washington. “Senator Edwards, who is a good guy, he’s been talking a lot about ‘I’m going to fight the lobbyists and the special interests in Washington, ” Obama said, calling out Edwards in his stump speech for the first time in recent memory. “Well, the question you have to ask is: ‘Were you fighting for (citizens) when you were in the Senate.”

Obama has an admirable record of taking up ethics reform in the Illinois Legislature and the U.S. Senate. Edwards has come to this issue late, adopting a no-special-interest-donations pledge when he launched his presidential campaign after having accepted them as a senator.

That pledge put pressure on Clinton and Obama to minimize political action committee (PAC) donations.

Obama does not accept them, but has used previously collected special interest contributions to his federal leadership PAC to make donations to lawmakers and interest groups in early primary and caucus states. Clinton has and apparently always will accept PAC donations.

These details are not trivial, but they are less important than what Obama’s call-out of Edwards tells us. As The Bourbon Room discussed Saturday, if Obama intensified his engagement with Edwards, it would signal that Obama sees Edwards as a big and possibly bigger threat in Iowa than Clinton. [For all the "fascinating" ramifications of a long-running Obama-Edwards fight, please consult the archives for "A New Level of Engagement"].

On a day when Hillary made it on all three major networks plus Fox and MSNBC, it stands out as doubly significant that Obama spent more time focused on Edwards than Clinton.

There is still a sense in the Obama and Edwards camps that Clinton is struggling and has yet to stop a gradual but visible slide in overnight tracking polls. Hillary’s overt efforts to play up her “human” send an unmistakable signal of internal campaign unease.

The campaign knew from the start Hillary was not viewed as warm or approachable. It sought to compensate by accepting that frame but turning it into a positive by preaching the national imperative to elect a no-nonsense, policy-driven, president “ready to lead on day one.”

Watching Hillary use the coffee sipping patrons at The Drake Diner in Des Moines as a humanizing backdrop and seeing her dispatch friends from New York and Arkansas to “tell personal stories” door to door about her in key Iowa precincts tells you all you need to know about Clinton’s internal polling data.

It appears the Obama-Edwards confrontation will continue.

Edwards must win Iowa, that means responding to every Obama attack and focusing on mobilizing his more reliable caucus-going backers. Obama needs to keep Edwards from over-taking him because an Edwards win deprives Obama of much-needed momentum for New Hampshire and gives Clinton, even if she finishes a close third, a chance to rebound there against Edwards.

If Obama heads to Las Vegas without a win, he will be hard-pressed to offer himself as a dynamic leader with a winning message. Instead, he may start to resemble Morris Udall as the affable and even lovable Democrat who can’t quite ever seem to do any better than second. Not where Obama would want to be.

Herein lies a lesson about how a race can change before your eyes.

A month ago, if Obama finished a close second to Clinton in Iowa it would have looked and felt more like a “win.” That’s much less true now. A second place finish to Edwards would look and feel deflating, even if Obama finishes ahead of a third-place Clinton.

Why?

Because doubts run rampant that Edwards can use a win in Iowa to win in New Hampshire. Those doubts are much less prevalent if Obama wins Iowa. Many inside and outside the Obama camp believe an Iowa victory could propel him to victory in New Hampshire (this is especially true if Edwards finishes second and Hillary third).

The stakes, therefore, are extremely high for Obama and Edwards. By their actions they are telling us they see the race as coming more down to them than a three-way dead heat with Clinton. At this stage, pay the closest attention to what the candidates actually do and say. That will tell you where the race is heading (even more reliable than The Bourbon Room).