Let's say this at the outset: if things go badly in Egypt, anyone who says that the current administration "lost Egypt" is being silly at best and malicious at worst. Our policy regarding Egypt has not changed in any significant way since Begin and Sadat signed the peace accords in the 1970s. If someone is inclined to blame Obama, they might as well blame either Bush, or Clinton, or Reagan, or Carter too.
That said, there's danger galore in what's happening and there's an excellent chance that things will go badly. Hosni Mubarak is a standard-issue autocrat/strongman of the sort that has plagued most of the world for a long time now. He's cut from the same cloth as any Arab autocrat you'd like to name, or any caudillo in Latin America. He is a thief, a liar and a killer. On balance, he needs to go.
The problem is what follows Mubarak. I have heard and read in recent days that the Muslim Brotherhood isn't so bad, really, and that we don't really need to worry about them should they take power in Egypt. Forgive me if I don't believe that. As I mentioned earlier, both Zaiman al-Zawahiri and 9/11 figure Mohammed Atta are both Egyptians. Both came to al-Qaeda essentially from the Muslim Brotherhood. The Muslim Brotherhood sits roughly in the same place now that Khomeini and the hardcore theocrats in Iran sat in 1979. And my guess is that the MB would do everything possible to seize power in the chaos that is sure to follow Mubarak's departure.
The tough part is this: there really aren't any good options right now. Mubarak might be ruthless enough to try to mow down the protesters with his police force, but there's reason to believe that the military would not stay in its barracks if that were to happen. In any event, Mubarak is 82 years old and unlikely to last much longer even if he manages to squelch what's happening. I don't have much confidence in Mohammed el Baradei, last seen in his element as a feckless, officious bureaucrat playing Sergeant Schultz around the Iranian nuclear program. He's got Kerensky written all over him.
So what can we do? Beats me. If you have any suggestions, I'd love to hear them.