Being that approval ratings for congress are in the 20% range, disapproval ratings for congress are in the 70% range, and most of the political leaders in Washington have approval ratings in the 20% range it is difficult to argue that either political party is doing much which truly represents mainstream American values. At the moment the Tea-Party is gaining momentum because of this dissatisfaction with both political parties, and it is not reasonable to label it as extreme in a large part because it is a chaotic cross section of Americans; and the reason it appears to be significantly more conservative than either political party is that conservative republicans are the most disenfranchised, American voters are (on the whole) much more conservative than either political party has become, and conservative Republicans who are not in the "good graces" of the Republican Establishment are trying to channel this outrage for their own political gain.
As much as Christine O'Donnell has very low odds of being particularly successful based on conventional wisdom and traditional voting paterns, I wouldn't necessarily say that this means she can't win in November. Based on conventional wisdom "Senator Kennedy's Seat" was certainly going to go to the Democrats and we all know how that turned out. The two things that could really create an upset are a high number of protest voters (voting less about issues and more to send a message to the government) and voter turnout.
