This Los Angeles Times story on Karl Rove (by Hamburger and Wallsten) tries to explain why he is not discouraged: "Instead, Rove is giving a virtuoso performance designed to prevent the Democrats from taking control of the House and Senate or, if that is no longer possible, to hold down the size of the Democratic victory to make it easier for the GOP to come back in 2008. His plan is three-pronged: to reenergize any conservatives who may be flagging; to make sure the GOP’s carefully constructed campaign apparatus is functioning at peak efficiency; and to put the resources of the federal government to use for political gain." There is nothing really dramatic in the article, mostly predictable tactical stuff, but worth reading anyway.
Rove isnt discouraged because he cant afford to be. If Rove throws in the towel, you might as well just rent crop dusters and paint the whole country blue.