What Bush did is what Bush has consistently done since the ad began to air: change the subject to getting rid of 527s altogether.
He's criticizing the ad because it comes from a 527, not because the ad is flagrantly biased and full of lies. That's an important distinction that major media outlets could pay attention to, yet they didn't.
Meanwhile, his campaign supporters continue to use rhetoric designed to take full advantage of the smear campaign. Mark Racicot talked about Kerry being "wild-eyed" about these ads, and wondered about the "steady hand on the ship of state," a clear allusion to the Swiftboat campaign.
Karl Rove knows that Democratic-aligned 527s have raised far more money than Republican ones. The Smear Boat campaign has allowed them to plug the issue of banning 527s, something that can only hurt Kerry, not Bush.
Without the coverfire of 527s, Kerry would be forced to spend his campaign funds to defend himself, while Bush continues to raise money on his protracted "primary" season. At the close of the Republican national convention, Bush will get his $75 million from public funding, while Kerry's campaign resources are drained away fighting these lies. That's what all of this is really about. Bush doesn't care for the subject of Kerry's war record at all, but weakening Kerry's campaign chest to outspend him from September through November? That's the real pie Bush is angling for.
The President has been called upon time and again to condemn these ads based on their content, not their organization's exempt status. To date, he has refused to do so, out of sheer political ambition. The President ought to be ashamed.