Jim Henley discusses a Matthew Yglesias post regarding libertarians voting for Democrats. Like many others, I think Dems are missing the boat by not courting libertarian voters. I don't think they don't want the lib votes, it's that they have a tin ear when it comes to advocating individual freedom. Some Democrat, somewhere, must understand the concept of liberty. If that person ever emerges (s)he will have a good chance at a successful political career.
I've never met a Democrat who wanted less regulation. Repubicans aren't a lot better, but occasionally they are. What it would take is a different definition of Democrat, and they just aren't redefining themselves in the right direction.
It certainly seems like an opportunity is being missed somewhere. I think you're right that there is a large untapped segment of libertarian support that could be reached.
The current group of neocons and social conservatives on the right seem to be doing all they can to alienate right-leaning libertarians (I've even seen Freepers treat libertarians with scorn and derision). The current administration has broken just about every principle of libertarianism that you could find. Tax cuts? Sure, but not by borrowing! We see bigger government, bigger spending, more government interference with individual and states' rights.
Someone on the left wouldn't have to espouse all libertarian beliefs, but simply putting together a group of principles that appealed to libertarians might be enough to swing some their way -- individual rights and balanced budget could be a winning approach.
Currently, the only Dem candidate who seems to be pushing the individual freedom issue is Kucinich, and he's way too far a distance for any right-leaning-libertarians to travel.