One of the interesting things about the worsening Senate picture for Democrats is that there's not a single race where an incumbent is likely to lose due to the Republicans having a strong candidate. If the election was today I'm pretty sure Blanche Lincoln, Harry Reid, Michael Bennet, and Arlen Specter would go down but that has everything to do with themselves/national climate and very little to do with John Boozman, Sue Lowden, Jane Norton, Pat Toomey, or any of the other GOP candidates running in those races. None of the Republican candidates are exactly all stars.
Which brings me to the news of Dan Coats' candidacy in Indiana. I think all things being equal Evan Bayh's fate would be determined by what voters think about Evan Bayh, Barack Obama, and national Democrats. Because of that I think if Republicans made Indiana a priority race they would do about equally well with any competent, well funded candidate regardless of their early name recognition- ala Kay Hagan or Jeff Merkley two years ago.
The thing about running Dan Coats is that he brings baggage to the race. The carpetbagger argument that can be made against him for being registered to vote in Virginia for the last decade is a real one- just ask Elizabeth Dole. Bayh can make some real contrasts for the voters by noting how many days he's spent in Indiana over the last few years compared to Coats. And of course it will be hard for Coats to run against the Washington political establishment when he's very much a part of it.
For those reasons I actually think Coats is a worse candidate than some more unknown Republican would be- because Bayh can plausibly shift the focus from being all about him to making it about his opponent as well. That's not to say Bayh will definitely win, but if he was going to face a tough challenge no matter what there are some things about Coats that make him a more desirable opponent than someone who could run as an outsider.