There are also some political considerations to appointing Hillary as Secretary of State. First it takes her out of politics for 2010, 2012 or ever. Michael Corleone once said his father had taught him to "keep my friends close and my enemies closer."
Good advice for Obama.
If Sen. Clinton becomes Sec. Clinton then a new Senator from New York will be appointed by Gov. David Paterson. I assume it will not be Eliot Spitzer, even if it saves the former Governor air fare traveling from New York to D.C. for his extra-curricular activities.
Whomever Paterson appoints, the GOP will have a better chance of winning that seat in 2012 than if Mrs. Clinton were running for a third term.