Why nominate someone so liberal? Why go for the gut punch: someone who actively flaunts the Constitution every chance she gets, someone who is such a minority elitist that she probably lacks "empathy" for anyone unfortunate enough to be "white" or "caucasian."
Sontomayor is someone who aspires to an elected political office, not an office charged with the interpretation of laws. She wants to make policy, not judge it. She wants to actively help minorities, not all Americans.
Why not go for Kagan, who was at least marginally more acceptable to conservatives? Kagan's selection would've indicated a passing respect for the red-blue divide in American politics, if not a wholehearted respect for the Constitution (really the only important criteria if you take our country seriously). Conservatives were amenable to Kagan inasmuch as she had a few moderate decisions and a fine academic background.
Kagan didn't have advocacy experience, making her a little more approachable Obama's eyes -- something he said he was looking for in a justice. Kagan also would've cleared the way for another juicy Supreme Court nomination closer to Obama's re-election bid, where he would've been able to play the Sontomayor card prominently and solidify the Hispanic vote.
But Obama went for the jugular immediately. He rebuked what many saw as a prudent nomination scheme -- nominating the safer candidate now for someone more risky, and political beneficial later -- because he didn't want to show deference to partisanship this early on in the game. He wanted to wage war. Republicans will inevitably loose that war, but they will hopefully win a few of the battles along the way. It won't be hard to do given her activist, anti-Constitutionalist, minority rights agenda.