While I think Obama wants to appoint a far-left idealogue, I believe there are four factors acting to moderate his pick (or at least pushing him to seek the appearance of moderatism).
1. The Stalled Dawn Johnson Confirmation. The fact that the Dawn Johnson has had so much trouble getting confirmed should have signaled to the Obama administration that, despite a healthy majority in the Senate, he does not have a rubber stamp on his nominees.
2. The 2012 Election. By the time the 2012 election rolls around whomever Obama picks will have developed a judicial record. Should Obama's pick join a particularly egregious decision, it could haunt him in the election.
4. Obama's Expansive Agenda. Obama is proposing drastic reforms on Health Care, Guantanamo, Immigration and Cap and Trade. It is hard to imagine him getting these accomplished if he faces a nasty, drawn-out confirmation process.