Iowa has the first in the nation caucus and many people place a lot of weight to the results. Sometimes I think they are important, like in the 2008 Democratic nomination race, when they had only 3 major candidates running. Barack Obama's stunning victory got cash to pour into his campaign and caused Hillary to take a major beating in the press as she and her campaign thought it was going to be a coronation instead of an actual fight. In the 2012 GOP race, where there are 7 candidates vying for votes, it is far less important. Right now you have 4 candidates vying for conservative votes with three of them, Santorum, Perry and Bachmann barely having any daylight differentiating their positions. And these are not minor candidates, in the latest RCP average, those 3 candidates are garnering 24.2% support combined, which is probably pretty close to the support that the winner of the Iowa Caucus will receive. And importantly, if those candidates don't get into the top 3 or 4 in Iowa and then don't get into the top 3 or 4 in New Hampshire, their campaigns are done. That support will then go to the remaining conservative candidates (or at least the most conservative of the remaining candidates). So what maybe more important than who wins may be who loses and where do their voters go. Just take a look back at 2008 when Mike Huckabee won with 34% of the vote and the eventual nominee, John McCain, came in 4th with only 13%. In fact, McCain only won 1 primary of the first 5 contests (though he did win the all important New Hampshire primary).
There seems to be a lot of chatter amongst the press that it is possible that Ron Paul would win in Iowa. I think that is highly possible. A caucus is not like a primary where you vote in secret and just go home and wait for the results to be counted. A caucus takes hours where speeches are given and people can be convinced to change votes. So often the people with the best organization, most diehard supporters and most buses wins. So let's say Ron Paul wins with 25-30% or more of the vote. Is that going to matter at all? I don't think so. He is a completely unelectable candidate and the vast majority of Republican voters want nothing to do with him. When other candidates drop out, he will receive a very small fraction of those voters.
What is going to matter is who has made it into the top 3 or top 4. Right now, my guess is that the top 3 (in no particular order) are going to be Paul, Gingrich and Romney, with the next three being Santorum, Perry and Bachmann. Given those three candidates are polling in low single digits in New Hampshire, their campaigns are going to be on death's door pretty quickly. How are you going to be able to market yourself as a legitimate candidate with a #5 showing in Iowa and a #5 or #6 showing in New Hampshire? You can't. By the time of the South Carolina primary on January 21st we might be seeing a much smaller field, possibly with only 1 or 2 conservative candidates (greatly reducing the split of the conservative vote), Romney and Ron Paul, which might be the final field in this race. So what is really going to be important will be who wins that primary.