It's an interesting moment.
The court is largely balanced, with a slight conservative tilt, which there are lots of reasons to think is a good thing. Progress does happen, in time, but there is a sense of a check on congressional and executive overreach.
I see three possibilities:
1. President Obama takes the opportunity to really lead, and proposes a solid nominee who skews conservative to maintain that balance on the court. I see this as least likely but I hope for the most (slightly edges out number 3).
2. President Obama takes the opportunity to remove the conservative tilt from SCOTUS, because it's reasonable for him to try it. I see this as most likely, and it will largely have no impact on the election, and overall lead to a country with less freedom long term (more social freedom, but far less economic).
3. President Obama (who knows about the GOP senate block threat) nominates a phenomenally impressive jurist with crazy good credentials who no sane person could argue against, except that he-she is a pre-op whatever married to eight people in 9 states (?) former Buddhist turned Muslim with gages and a face tattoo. I don't know if such a person exists, but it would drive the GOP off the cliff, I mean right off the bleeding edge. Some of the pundits would absolutely suffer heart failure.
Number 3 would be entertaining for me personally, and make an eventual liberal nominee much easier to swallow for the majority of the country that really doesn't want to see radical shifts in the overall makeup of the court. Aside from those times where Scalia was an unrepentant bigot, he was actually really great. What we want in a replacement is someone just like him who also doesn't care where you put what in whomever.
I respect Obama's talent for the process, and I hope he combines number 1 with some sort of a deal to put a super liberal (a la number 3) on the court as well, and one of the older liberals can retire (2 spots available with that retirement + scalia, two nominees, one conservative, one liberal). It's what Bartlett did!