The Democrats are not done for. The election was extremely close; Bush only managed to pull ahead by the skin of his teeth. The GOP managed to crawl ahead of Kerry by making the campaign about fear (terrorism) and wedge issues (gay marriage).
The pressure is now on the GOP. Sure they picked up a few extra seats in both houses, however this was predicted. They still do not have the 60 needed to break a filibuster, and Tom Delay is looking at severe ethics charges. With effective control of the White House and Capitol Hill, the pressure is now on the GOP to improve the country. If in 4 years, the country is still headed in the wrong direction, it will be only the GOP's fault.
Sure, the democrats have the odds against them right now, however things will change in 4 years. It is becoming more and more difficult for Bush to ride the 9/11 bandwagon. Iraq is only worsening, and Bush's presidency, while speaking about bipartisanship and change, will only bring more of the same thing.