Tonight, Iowa Democrats expect the highest turnout ever for their state’s Presidential caucuses. A competitive race, extensive campaigning and coverage, and three top candidates that most Democrats appreciate are all contributing factors. Democrats are also more likely than Republicans to think that their nominee will be the next President of the United States.

While we can reasonably expect a large turnout, picking a winner or a margin of victory is far less certain. As noted yesterday, caution should be used in reading the latest polling from Iowa. That’s primarily because it is impossible to determine who will actually show up and participate in the caucus.

What we can tell from the polls is that registered Democrats likely to show up have a slight preference for Hillary Clinton over Barack Obama. However, Obama holds a commanding edge among Independents considered likely to participate. Some polls, notably the Des Moines Register poll, suggest that up to 40% of caucus participants this year might be Independents. That’s more than double the rate of a typical caucus.

If the Independents and first-timers fail to show up in such large numbers, Clinton could emerge as the victor.

However, if those Independents and first time participants show up, Obama will likely defeat Clinton in Iowa. Clinton will still remain the frontrunner for the nomination, but her vulnerability will have increased dramatically.

The reason that Clinton will likely remain the frontrunner even with an Obama victory is because the former First Lady is expected to win among registered Democrats. For Obama, winning with the help of Independent voters is better than losing without them. But, it also means he is following the path of John Edwards in 2004 and John McCain in 2000. Both those men did well among Independents but could never win a majority of voters within their own party.

Some states allow Independents to participate in their Primaries, others don’t. Edwards and McCain always did better in open Primaries but stumbled in the others. Sooner or later, to win the nomination of a Political Party, you have to win the votes of those in the party. But, for a candidate like Obama seeking to build momentum, Independents offer a great opportunity. Importantly, Independent voters are allowed to vote in the New Hampshire Primary on January 8.

If he can win in Iowa and do well in New Hampshire with Independent support, Obama will have earned the opportunity for a final appeal to Democrats. As he does so, he will undoubtedly tout his then-proven ability to attract Independents and attract new voters into the process. That is why Clinton’s status as frontrunner will be more vulnerable.

The first opportunity to measure the impact of the fallout from Iowa will be in the Rasmussen Markets data shortly after the results from Iowa come in. Since the Markets offer real-time data provided by traders in a prediction market the hours following the Iowa results will highlight new perceptions of what to expect in New Hampshire and in the race for the nomination. If you would like to participate in the Rasmussen Markets, it costs nothing to join and add your voice to the collective wisdom of the market.

Data from Rasmussen Markets does show that Obama is favored to win in Iowa while Clinton’s numbers dipped. For trading on the day of January 2, the closing prices showed Obama with a 60.0% chance of winning. These numbers reflect results from a prediction market, not a poll.

In terms of winning the nomination, the latest numbers show Clinton at % and Obama at %.

The latest Rasmussen Reports poll of the Iowa Democratic Caucus was conducted December 17. It found Hillary Clinton was then supported by 31% of Likely Caucus Participants. Barack Obama earned the vote from 27% and John Edwards was the top choice for 22%.

However, among those who are “certain” they will participate in the caucus, it was a bit closer—Clinton 29% Obama 28% and Edwards 22%.

Among those who have participated in the caucus before it was Obama 26% Clinton 25% and Edwards 24%.

Slight adjustments to the expected turnout produces a variety of results, but none that show a clear leader in the race.

Adding to the closeness of the race are the second choice rankings. Edwards is the second choice for 28% while Obama is the number two pick for 22%. Clinton and Bill Richardson are the second choice for 15%. Second choices are important for two reasons. First, because 26% of Likely Caucus Participants say they might change their mind. This includes 8% who say there’s a good chance they could change their mind.

Additionally, if a candidate receives less than 15% of the vote in a particular setting, their supporters will be re-allocated to other candidates.

These results are generally similar to those from December 10 and the overall message is the same—it is still quite possible for any of the three leading candidates to emerge victorious. The caucus victor will be the candidate who does the best job of getting her or his supporters to the caucus sites.