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Stevens has been convicted. He cannot retain his seat while in prison. If he resigns the day after the election (assuming he wins), Palin gets to appoint the person who would be his replacement.

The linked article says that Stevens CAN retain his seat:
"If he wins his re-election race against Democratic Anchorage Mayor Mark Begich, Stevens can continue to hold his seat because there is no rule barring convicted felons from serving in Congress. The Senate, however, could vote to expel Stevens on a two-thirds vote."

If he does win re-election and then resigns, or gets ousted by the Senate, I don't think Palin plays any role. According to Wikipedia, the Governor of Alaska doesn't have the appointment power. (Voters removed it in 2004, ticked off at Frank Murkowski for appointing his daughter to succeed him in the Senate.) Presumably that means the seat stays vacant until they can hold a special election.

I was hoping that in the event McCain-Palin lost the election (God forbid!), Sarah could appoint herself to fill the seat. She would then be known as Senator Sarah Palin, and would be in the belly of the beast, positioning herself for a presidential run in 2012.

Of course, I would MUCH rather see the long-faced media types address her as Vice-President Elect Sarah Palin the night of November 4th......