I think that Beijing is very capable of hosting a successful Olympic games. This partly comes from the fact that the PRC has a very strong government (i.e. one that is in control and can do pretty outlandish things by western standards without much fear of real retribution by the people), and can pretty easily whip Beijing into shape for an even such as The Games. I was in Beijing during the 50th Anniversary of the Communist Republic in China, and I must say Beijing was not all that bad. For starters, the government banned ALL diesel trucks from the main roadways in Beijing, which alleviated traffic snarls and went a long way towards cleaning up the HORRIBLE air that they have in Beijing. The central part of the city, as well as many public buildings, were also beautified in some way to make everything look more elegant. There are also many things to do in and around the Beijing area, like the Forbidden City, Summer Palace, Tiananmen Square, Great Wall, etc. The airport also has a new terminal and there is plenty of space to grow.
However, even though when Beijing looked somewhat nice during the 50th anniversary celebrations, that still does not hide the fact that the rest of the city is pretty much a dump. Dirty buildings, empty lots, lots with demolished buildings, unclean/traffic clogged streets (with cars driving on them that have ZERO emissions standards; it is hell having to breathe the fumes during a traffic jam), horrible pollution, terrible overcrowding, even unsafe and shoddy construction of public buildings, the list goes on and on. My conclusion: Mainland China is a new and extremely interesting place to visit if you are the average Western tourist, and would probably appeal to many people if they experienced it during the Olympics. However, it was not in my view someplace that I would like to go back to visit very often, and may leave a bad taste in the mouths of many more visitors than some of the other contending cities would.
Therefore, If I had the choice, I would not hold the 2008 Olympics in Beijing. I am sure the government could and would make a spectacular effort and go a very long way towards making the city beautiful and as accomodating as possible, but I feel that Toronto, Paris, or Osaka venues for the Olympics would be much more successful. Personally, my vote would go to Toronto, with Paris a close second, only because I'd like the Olympics to change continents every time they are held.
On July 13, the IOC will select one city to host the 2008 Olympic Games, out of 5 candidates: Toronto, Paris, Beijing, Istanbul, and Osaka. The competition is fierce, as Beijing lost the 2000 Olympics by only one vote. It shall be interesting to see what happens...