In the end, he would rather lose the election than lose all his dignity (and exploit racial fears), as witnessed by his refusal to exploit the Rev. Jeremiah Wright as a campaign issue. In PA, they aired an ad that could have been the central thrust of his campaign-- but now, on the heels of Ayers and the Palestinian Prof, seems like a last, desperate appeal. At least before the economy redefined the campaign, the issue could have ultimately been the game-changer with the undecided independents who, while not "racist" in the traditional sense, are wary of black over-entitlement.
link to CNN article on PA Republican Party ad
In the end, McCain has lost a lot of his gravitas, but this point should-- nay, must-- be remembered.