In it, but not of it. TPM DC
Jim Manley, spokesman for Senate Majority Leader Harry Reid, told the Boston Globe, the idea is "well within the scope of the rules of the Senate," and, indeed, the deal with labor is largely a change to the tax structure of the bill, which is the sort of issue the reconciliation process is designed to address.
But there's another, extremely important X-factor.
Even if progressives can be convinced, in light of the Massachusetts curveball, to hold tight and pass the Senate bill, there's still the question of whether vulnerable members (freshmen, sophomores, red-state Democrats) will react to the loss of Kennedy's seat in sky-Blue Massachusetts with panic, and rush for the exits.
And yet, this is the most appealing option on the table for Democrats. There's almost no chance that the White House or Senate leadership could convince Sen. Olympia Snowe (R-ME) not to filibuster the bill if the House sent it back over with their changes. Dems also don't want to start from scratch, and pass an entirely different bill through the reconciliation process. And all of those long-shot possibilities are much more appealing than defeat.
Discussions between members are ongoing, and nobody thinks moving ahead will be easy. But Democrats aren't willing to accept a Coakley defeat as a death knell for the year long fight over health care. At least not yet.