Too many libertarians seem to define libertarianism as a very specific and restrictive political program: as a laundry list of government programs to be abolished, or equivalently as a very short list of government programs that won’t be abolished. By that measure, libertarianism is nowhere close to successful. But if we define libertarianism more broadly as a set of general ideas and attitudes--pro-market, pro-tolerance, skeptical of authority--the last few decades look a lot better from a libertarian perspective.
As Matt points out, this sounds a lot like contemporary liberalism, which has gradually been shorn of its more statist elements. This, ultimately, is why I'm persuaded that the liberal-libertarian alliance Lindsey envisioned in his December 2006 TNR article is likely to come about in some form or another. You're already starting to see quite a few young libertarian-leaning voters decide that the Democrats' mild economic heresy is more palatable than the GOP's more serious deviations from the small-government line in the realms of social and foreign policy.
What's more, it's quite possible that the trend might be accelerated if the Democrats find themselves controlling both Congress and the White House come January. One serious look at long-term budget projections will convince the Democrats that means-testing entitlements is the only way to make the numbers add up: You can keep sending checks to wealthy seniors or you can fund liberal priorities like universal health care for the working poor, but you can't do both. If, after a few years of unified Democratic control of the federal government, you don't see marginal tax rates reverting to their pre-Reagan levels, libertarians will be apt to decide they've won the battle and Lindsey's prediction will be borne out. A social-safety net that's genuinely Rawlsekian, even if it's more generous than most libertarians would prefer, is something I'd wager they'll be able to reconcile themselves to. (Of course, it's also possible that we'll get no means-testing of entitlements, a serious spending orgy, and massive tax hikes beyond anything currently being proposed by any prominent Democrat, which would obviously preclude a liberal-libertarian alliance. But I wouldn't bet on it--even Democrats aren't that suicidal.)