The retirement of Joe Lieberman is the culmination of a series of domestic repercussions of the Iraq war. The war estranged Lieberman from his party base, which gave rise to a liberal primary challenge in 2006. National Democrats supported Lieberman, but when he lost the primary, they lined up behind the fully-nominated Democrat, infuriating Lieberman and driving him away from his party.
Lieberman's final departure from the party became inevitable when he supported, and enthusiastically campaigned for, John McCain in 2008. It's one thing for a Dixecrat in a Southern state to do that fifty years ago, but Connecticut is one of the more liberal states in the country. After that, Lieberman had no plausible path to return to the Senate.
The most interesting question may be why Lieberman took this suicidal path. My guess would be that he didn't consider it suicide. Lieberman is a true believing New Democrat who is influenced by the neoconservatives. One common thread uniting these two strands of thought is an overly-developed fear of McGovernism. George McGovern, the very liberal Democratic nominee in 1972, lost in a landslide, and his defeat ever since has been held up as evidence that middle America rejects and always will reject unvarnished liberalism. I think there's some truth to that but it's an oversimplified view.
The point, though, is that Lieberman is almost certainly a true believer in the legend. And you have to remember that, when Barack Obama won the Democratic nomination, a lot of centrists and neoconservatives viewed him as the heir to McGovern and a likely loser. In Lieberman's mind, I would submit, Obama was the heir to McGovern, and after he went down to defeat at the hands of popular maverick John McCain, Lieberman would be well-positioned to say "I told you so." He could then tell Democrats that only his brand of moderate Democratic politics could truly prevail, and the sadder but wiser party base would trudge back to his column.
Obviously, I'm speculating. It's highly unusual for a competent politician to take such a suicidal step. It's possibly Lieberman knew what he was doing when he sealed his own fate in 2008, but I think he really believed he could survive.