It seems Obama has offered Clinton State. It’s an interesting choice, and there are a lot of Progressives who won’t like it much, given Clinton’s record of supporting the Iraq war and voting for the stand alone resolution making Iran’s Republican Guards a terrorist organization, which made a part of the Iranian military "terrorists". Clinton was definitely more hawkish than Obama was during the primary season, and during her career.
The other side will say things like "she serves at the President’s discretion and will carry out his policies." This is true, sort of, but it’s disingenuous. It’s hard to argue with a straight face that what a Secretary of an important department thinks on the issues in her portfolio doesn’t effect how she carries out her duties. Clinton will have a lot of discretion in the details, and the details matter a lot. Clearly, who is in a given Secretary position matters a lot and the "it doesn’t matter who it is" argument doesn’t pass the laugh test. Obama needs people he doesn’t have to micro-manage, because he will be far to busy to do so, and I think he’s smart enough to understand that.
So the question then, is whether in Obama’s "team of rivals", Clinton can be assumed to follow direction "enough". That’s a judgment call.
Clinton does offer one big advantage as Secretary of State: the Clinton name. The Clintons are loved overseas, and there is no one else in America (other than her husband, who will presumably be by her side in any case) who would demonstrate more clout than having Hilary Clinton arrive in your country. Likewise she already has relationships with many world leaders and doesn’t have to build up that trust from scratch. Clinton can hit the ground running, and assuming Obama makes it clear that he’s backing her, she can speak with more authority than perhaps anyone else could, on his behalf.
Clinton as Secretary of State, then, is either a brilliant move or a dunderheaded one, and only time will tell which it is. It’s definitely a roll of the dice, but it also shows, on Obama’s part, a willingness to take a chance to try and get what might potentially be the best possible Secretary of State, at the risk of getting one that would be awful.
Personally, I’d rather have seen her with a domestic department under her helm, as her domestic policy instincts are mostly more progressive than her foreign ones. It is, perhaps, most interesting that Obama did not offer her Health, for example, but then the reason he didn’t is probably that the Senate has rebuffed her, hard, in her healthcare ambitions. Seniority matters a lot in the Senate, and Clinton doesn’t have it. By pushing for what a man like Kennedy thought she hadn’t earned, she may have damaged her ability to do much on health care beyond comment.
And, ultimately, the fact that true power in the Senate is a matter of seniority and that she has many years yet to put in to get it, may be what makes her take the cabinet position. She has said in the past that she doesn’t want to serve on the Supreme Court, and if she’s still intent on making a run for President in 8 years, then a high profile cabinet position may be a better place for her in the meantime.
Overall I won’t mind Clinton as Secretary of State as much as many. I think she’ll understand that to be most powerful and succesful she’ll need to color inside the lines Obama gives her, but what colors she puts inside those lines will be up to her. The more he trusts her, the more powerful she will be.