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Maybe I'm dense, but I don't get it - how does Steffen spreading rumors in private e-mails give him ammunition to fire state workers?

You're not dense. I could have made it clearer.

Governor Ehrlich was the first Republican governor in Maryland for many, many years (Over 30, IIRC). Maryland has a large number of employees who can be fired at-will (over 7,000, IIRC). It doesn't take a rocket scientist to figure out that many of those jobs are filled by people with ties to the Maryland Democrat party. According to many newspaper reports, Steffen was tasked with firing some of these MD at-will employees.

Of course, the Democrats got upset about when some of their most loyal supporters, relatives and who knows who else were kicked out of their cushy state jobs to make room for Ehrlich's appointees. This has fueled the belief that Steffen was entrapped by the Maryland Democrat party into making allegedly incriminating statements about Mayor O'Malley's alleged marital infidelity. How better to stop your appointees from getting fired than start a scandal over it?