By cracking wise with references to Palin's "slutty flight attendant look" and her imaginary need to keep her daughter away from Yankees slugger Alex Rodriguez, the "Late Show" host set off a significant political tempest.
Experts and observers of politics and the media see two larger expediencies present: the funnyman's need to break through the late-night giggle chamber, particularly with Conan O'Brien's new gig on "The Tonight Show," and conservatives' need to find a foil.
Indeed, the Letterman-Palin feud has prompted a question: can Ball State University's most famous alum become the right's version of Rush Limbaugh - their new public enemy number one?
Brent Bozell, president of the conservative Media Research Center, says the Letterman flap "underscores everything that conservatives are saying. If Rush Limbaugh had made a joke about Barack Obama's daughter, he wouldn't finish the sentence before they were calling for him to be fired. It is beyond a double standard. It is a rank hypocrisy and everyone sees it."
RNC Chairman Michael Steel has advocated a "Late Show" ban, saying in a statement that, "when Letterman starts making tasteless jokes about kids, it's time to turn the channel."
However, as the Limbaugh-Letterman comparisons proliferate across the web and cable news shows, some Republican strategists question the wisdom of trying to make a political target out of the 62-year-old comedian.
"If the right goes after Letterman they make him look big and themselves small," says Mark McKinnon, a campaign advisor to George W. Bush and Sen. John McCain (R-Ariz.). "It's win-win for Letterman."
Republican media consultant Fred Davis, a chief ad-maker for the McCain campaign, added: "I think it's a mistake too many conservatives are making right now. They are trying to find anything to attack."
Davis sought to downplay the egregiousness of the offending Letterman cracks, saying, "David apologized. He said it was over the line. He is a funny guy and his job is to do sarcastic humor. That's his thing."
On Wednesday's program, Letterman suggested he didn't want to be in the spotlight quite like this, and sought to clarify the joke, saying that while it was "in poor taste," he was referring to Palin's 18-year-old daughter, Bristol, and not her 14-year-old daughter Willow with his Rodriguez reference.
Palin, however, doesn't appear inclined to stop answering questions about the episode – or letting up on the pressure.
On Friday, she told NBC's Matt Lauer that Letterman's jokes reflected a "sad commentary of where we are as a culture" and went on to complain about a "political double-standard" that was being perpetrated by the mainstream media. Palin said that during the campaign, the press honored Barack Obama's request to keep his family off-limits, mocking the president as "the candidate that must be obeyed."
"They haven't done that on the other side of the ticket and it has continued to this day," Palin said.
Others on the right only found their outrage further heightened after Letterman's seven-and-a-half minute response Wednesday, which amounted to something between an apology and a defense.
"That was truly the insulting thing," says Bozell. "It was snarky, it was arrogant, it was insulting and pretty much underscored for conservatives that this guy has no problem with personally attacking conservatives."
Through a publicist, Letterman declined to speak with POLITICO. But observers have noticed a change to the “Late Show's” comedy in recent years, beginning with his frequent criticism of the Bush Administration over the Iraq war, and continuing with his takedowns of Limbaugh and Fox News' Bill O'Reilly.
In one long-running gag, Letterman ran almost nightly installments of “great moments in presidential speeches,” a video-gag juxtaposing moments like Kennedy’s “ask not” speech with President Bush’s frequent verbal stumbles.
Additionally, Lauren Feldman, a professor of communications at American University, says that Letterman has become more "serious and incisive" in interviews with politicians compared to previous points in his career.
Feldman says that studies conducted during the 2000 election show that Letterman, along with his late-night competitors, "tended to be sympathetic toward political guests, throwing them softball questions that rarely dealt with substantive policy issues."
But Letterman was anything but sympathetic when it came to Sen. John McCain last September, when the then-Republican nominee cancelled, at last minute, an appearance on the “Late Show” while he was swinging through New York. McCain claimed that he needed to immediately get back to Washington at the time to deal with the exploding financial crisis.
But McCain did find time to sit down with CBS News anchor Katie Couric first, something that Letterman noticed on an internal CBS video channel. The host blasted McCain during the taping of his show that evening, and made the incident a focus of his monologue for days afterwards, commenting at one point, that "this is not the way a tested hero behaves."
McCain returned to the program some three weeks later and apologized for the cancellation in an interview with Letterman that was pointedly aggressive, particularly about McCain's selection of Palin as his running mate and her preparedness for high office.
Letterman has never publicly claimed to be a liberal or a registered Democrat. When asked by Rolling Stone magazine last year whether he would vote for Barack Obama, he responded: I can't tell you who I'm voting for. I don't know who I'm voting for."
However, in that same interview, he complimented the intelligence of Bill Clinton, and said of Al Franken: "When he talks and he says something, I believe him more than I believe anybody who currently holds a seat in the Senate."
While Letterman has always had a reputation of being edgier than his former time-slot rival Jay Leno, he mostly kept his political identity murky, attacking politicians on both sides.
But as the late-night TV universe has become more fractured, and the network hosts no longer command the audiences they once did, media experts say the rules of marketability have also changed. No longer is the expression of personal political beliefs a ratings threat.
Ted Johnson, the managing editor of Variety, sees Letterman's comedic shift as a response to the "Jon Stewart effect."
"Late-night hosts used to pride themselves on their viewers not knowing which way they leaned politically," says Johnson, who blogs about the intersection of popular media and Washington politics at Wilshire & Washington.
"What changed all of this was Jon Stewart and now the one-two punch of Jon Stewart and [Stephen] Colbert," says Bob Thompson, the Director of Syracuse University's Bleier Center for Television and Popular Culture. "Even though their numbers aren't as high [as Letterman's], they are the ones getting all the attention."
"All of the late-night comedians have to in one way or another come to grips with that. Letterman did so by becoming more political and more focused and acerbic in his political humor, trying to move in the direction of Jon Stewart."
But Bozell ponders the more nefarious possibility that "Marketing 101 is being thrown out the window because the left's influence is so powerful."
Letterman's rating numbers have been under close watch since O'Brien took the helm of "The Tonight Show" last week. Despite a strong opening on his first show, O'Brien's numbers have been sliding since, and on Tuesday, Letterman eclipsed the NBC program in the ratings for the first time in eight months.
Still, McCain's make-up visit last October brought the "Late Show" over 6.5 million viewers, the highest viewership for the show in almost three years.
Melanie Mason contributed to this story.