So it appears (at 4.39pm) that Labour are admitting defeat and GB is moving out of Downing St. Lib Dem sources are saying that the talks with Labour never really got anywhere. My sources (hmmm - sounding like journo now) are telling me that whilst the Labour peers in the room (Mandelson and Adonis) were fairly serious about a deal, the MPs (Harman and Balls) had bad body language and were more concerned about their own leadership election than anything else. Could the Lib Dems have done a deal with Labour of they didn't feel that the Labour hearts were in it? I doubt it. And when every single vote would matter, would Brown have been happy to stay in the Commons on the backbenches turning up to every single vote?
And so the only deal that remains is with the Tories. Except that the Tories are now worried that they have over-committed. Whilst they can't renege on what was said publicly (including the AV referendum), they can seek to re-negotiate what wasn't and this might scupper the whole deal.
From a Lib Dem perspective, there is also the prospect of a Versailles type situation. After the First World War, the allies inflicted a punitive reparations deal on Germany at the Treaty of Versailles. Such was the resentment among the Germans at this deal that they sought every opportunity to get out of it and there was a huge resentment created at all things English, French and American. This attitude, in turn, gave Hitler a basis on which to start building support - which eventually led to his being able to take power.
I'm not, of course, comparing the Conservatives or any single member of the Party to Hitler or the Nazis in any way. But if the Tory backbenchers and grassroots feel that the Lib Dems have won too good a deal then the antipathy towards us might grow exponentially and this could hasten the breakdown of any deal - and resentment of David Cameron for giving away the farm.
Of course the Lib Dems want to get as good a deal as possible. After all, we will have to buy in to the majority of Tory manifesto promises under any coalition deal. And it is right that we should seek to get as much of our manifesto accepted as possible. But too good a deal might also bring more trouble for the future.