The obvious ways in which Nelson’s decision hurts are (1.) psychological and (2.) financial, and the two are linked. In recent weeks, Democrats had been feeling better about their hopes of hanging onto the Senate, which they control by a 53-47 majority (counting two independents who vote the Democrats’ way). Democrats have many more vulnerable seats up this year — the 2012 seats were last filled in 2006, a landslide year in which Democrats won all the close races. Holding the majority would have been tough for the Democrats no matter what. But they were feeling much better about several close races, notably in Missouri and Montana, and Elizabeth Warren has been running strongly against Republican Sen. Scott Brown in Massachusetts, the best Democratic chance for a pickup.

Nelson’s stepping down halts this psychological momentum, which in turn will help Republican fundraising. Self-interested money — money from interest groups that want an in with whichever party holds the majority — may now flow a bit more to the Republicans.

But the Nelson seat was always going to be hard to hold. The Democratic Senatorial Campaign Committee had already spent a lot on ads trying to bolster Nelson’s image and create an environment that would nudge him toward running again. That money is now down the drain, but had Nelson sought reelection, Nebraska would have become a Democratic money pit.

Moreover, the Democrats’s chance of clinging to their Senate majority is likely to depend in significant part on President Obama’s performance — and that would have been true with or without Nelson in the race.  For example: If Obama generates strong Democratic turnout in Virginia, former governor Tim Kaine has an excellent chance of holding that seat for the Democrats. If that turnout doesn’t materialize, Kaine will a much tougher time.

There is talk of former Nebraska senator Bob Kerrey now jumping into the Nebraska race. I surely hope he does, if only because Kerrey is one of the most interesting Democrats in the country. It may be hard for him to win, given how long he has been out of the state. But he would quickly become a national voice in the 2012 campaign, as Elizabeth Warren already is.

If Democrats do manage to hold their majority, the party’s caucus will shift modestly to the left. Connecticut Sen. Joe Lieberman, the independent who votes with the Democrats, is also retiring. Lieberman and Nelson were among the most consistently conservative votes on the Democratic side. Replacing both of them with Warren would be a net loss of one seat, but a net gain for progressives on many roll calls.

The bottom line: No Democratic strategist is happy about Nelson’s stepping down. It makes the Republican path to a majority, which already looked promising, somewhat easier. But larger forces — especially the trajectory of the presidential race — will ultimately determine who controls the Senate.