The Democrats will not win until they come to grips with a few realities:
1) Pandering to maintain a coalition no longer works, the reason is you can tailor messages easier these days, but those messages hit the Internet and alienate as many people as they garner. You have to have a core set of principles that you can articulate in easily digested soundbites, not platitudes.
2) The Democratic left is a small minority, maybe 15-20% of the electorate, the Republican right is closer to 35-40%. So if the Democrat left doesn't accept it's minority status and thinks its policies should be the core of the party, the Democrats will stay irrelevant. The only Democrat who can win is one who is centralist, the Clintons were right about that, but did a horrid job selling that point (backroom deals to maintain a coalition, not an well articulated philosophy). Ironically, Obama is very similar to the Clintons in terms of policy, and he's always been honest about the need for pragmatism.
A workable philosophy would consist of the following:
1) Support for EFFICIENT goverment, that is, break the power of government unions as the tradeoff for expanded government, so you can force teachers to teach, police to be respectful and accountible to all citizens, bureaucrats to be responsive, labor for construction to be paid at market rates, not inflated regulated rates and so on. Make a concerted effort to reduce the amount of regulation and be more efficient. Sunstein pushed cost benefit analysis at OMB, following the Clinton Administration lead, but the Left hates C-B because it means prioritizing, not doing everything - but the Left has never accepted this is a capitalist country so one must work within, not against, that context.
2) Support for real tax reform, we need a carbon tax, VAT, and lower tax rates and the elimination of most deductions, including those for mortgages, health care, interest, etc. Studies have showed that you can make spending progressive, but not taxes, increase tax rates too high and the wealthy invest more in tax avoidance. So a simplier progressive tax system makes enforcement easier, avoidance less effective. Reduce the corporate tax rate (right now we have high rates and lots of deductions, the worst of all worlds).
3) Tolerance goes both ways, the LEFT tends to want to impose their values on RED America, and can't understand why there's a backlash. What is acceptable in SF maybe be offensive in Grand Rapids. Don't try to legislate everything, a lot of times manners and civility beat lawsuits. Things like voter ID laws designed only to disenfranchise citizens should be fiercely contested, but if a Christian baker doesn't want to make a cake for a gay couple, is that really worthy of government action (there are lots of alternative bakers, and a homophobic business is shooting itself in the foot)?
4) We need a real safety net, but we also need to make a strong work ethic a core value. If you look at Europe, the countries that combine a strong welfare state with economic growth are the ones with a Calvinist/Protestant culture, Germany, Holland, Scandanavia - so we want universal health care (the basics, but with rationing and cost controls), minimum income supports, etc., but also work requirements - there is no "right" to government assistance.
5) We need a real Republican party, one that is sane and pushes the Democrats to perform, not merely promise. Without fiscal responsibility we can end up like Venezuela or Greece, where corrupt socialists bankrupt the country and leave the poor and working class worse off in the long run.