I owe my recent thinking on this to Chantal Hebert in the Toronto Star.
Harper's situation is in no way what he bargained for--even as recently as the Fall 2008 campaign. Despite showering Quebec with literally billions of dollars, he didn't win the seats there that he needed for a majority--falling only about a dozen seats short. Then Harper pulled a stupid stunt, galvanizing the opposition parties, and practically forced the Liberals to replace the hapless Dion as leader with Michael Ignatieff, who seems to be performing very well. (One of Harper's smarter moves was getting the House of Commons to vote yes to the proposition that "the Quebecois are a nation." Who is included in "Quebecois" was left deliberately ambiguous, yet the Bloc Quebecois had little choice but to vote yes. Apparently Ignatieff deserves a lot of the credit for suggesting this master stroke). Polls show the Liberals leading everywhere except Alberta. There are probably few observers who believe Harper will ever win a majority. If he couldn't form a majority running against Dion, he can't form one, period.
Harper himself is certainly smart enough to know that the Reform Party from which he sprang was to the right of most Canadians. He has promised not to take any action on abortion or gay marriage, and now he is spending like a drunken sailor. The Mulroney situation, which might seem to come down from a very distant past, haunts him. There are still some former Progressive Conservatives around who think Mulroney deserves to be treated with great respect as a conservative leader: after all, he won two majorities, and Harper has yet to win one. On the other hand, the Reform Party partly came into existence out of hatred of Mulroney.
The Khadr case is a reminder of when Harper was a knee-jerk supporter of George W. Bush and all his wars. That position probably always sat a bit oddly with a lot of Canadians, even when Bush was popular in the U.S., and now the situation is completely changed. There is a backlash against the Bush torture and detention policies, even in the U.S. Khadr is a Canadian citizen. Why exactly can't he just be brought back here for a trial? Harper cut his teeth politically on the position that everything American was better than everything Canadian. As Frank magazine used to paraphrase the National Post: Canada sucks. Harper, despite his considerable intelligence, is crippled in trying to inspire Canadians by his own convictions, especially those he has defended forcefully and publicly in the past. He also hurts himself by doing stupid things during his angry periods.
Why shouldn't Harper just split, rather than face another election even more humiliating than the last? Sure, he would probably screw his party, but he might just say that's life.