@McGentrix,
John McCain has used the exact same expression when referring to a position of Hillary Clinton's last fall, and then again this spring. Clinton did not carry on and demand an apology.
http://www.youtube.com/watch?v=WMPYkNQlJMM
Obama was clearly not referring to Palin with his remarks.
"Putting lipstick on a pig" is a common term in Washington, referring to putting spin on something.
McCain’s former press secretary, Torie Clarke, also wrote a book called “Lipstick on a Pig".
This is all phony outrage on the part of the McCain camp. It's a distraction from the substance of what Obama was saying about McCain. The Republicans create a phony uproar, demand an apology, and throw this sort of bone to the media, and the media stupidly runs with it and spends an entire day talking about it.
The Republicans are now engaged in the politics of stupidity.
http://blog.newsweek.com/blogs/stumper/archive/2008/09/10/the-politics-of-stupidity.aspx
You can listen to what Obama actually said at the above link.
Sorry, Sarah Palin does not own exclusive rights to the word "lipstick", and everyone who uses the term "lipstick on a pig" is not referring to her. The phrase has been around a long time--McCain often uses it.