"Was the Likud campaign really this inept?"
That I'm not sure about, only an insider can really know for sure. Netanyahu is quite popular among American Jews, and I personally believe that he was the only candidate in this election that understood the problem of Islamo-fascism and the trouble Israel is in with the world community.
However, I hear that within Israel he is considered a sleezeball. His personal life is not exactly the ideal for a political leader (a few divorces and affairs), and he is considered a political opportunist.
I think that these things may have been overlooked had the security picture not looked suddenly so rosy. The terrorism has abated enormously thanks to Israel's tough policies earlier in this decade, plus Hamas's decision to temporarily cease fire as it saw an opportunity to seize power and territory. When Olmert gives him everything he wants to give them, however, they will go right back to terrorism (and they have not stated otherwise), and that could be Bibi's moment.
I don't see how you can have security when you're within missile range of Al Qaeda on the West Bank.