It's not quite clear what game Iran is playing with the British prisoners. They may just be trying to negotiate to get back the Iranians captured in Iraq, or maybe Ahmadinejad hopes to prop up his shaky regime with this kind of stunt. On the other hand, he has handed Cheney a knife and yelled "stab me."
Perhaps he is gambling that Bush is too wounded to react. What about Britain? Can it project significant power into Iran? Probably not, without US help. There is also the fact that war with Iran would drive oil way up - maybe over $100/bbl.
I haven't seen much blogospheric reaction, but I suspect that this is an extremely dangerous moment. I can't believe that either Bush or Blair will tolerate a Carter style hostage situation, but the alternatives are pretty grim - not that discretion has ever been part of Bush's DNA.