The only thing standing between Libby and many years of prison is his ability to cut a deal with prosecutors. What does Libby have that they would want? Information on the leak scandal and how far up the ladder of the Bush administration it goes. What could convince him to keep quiet? A presidential pardon.
It's hardly unprecedented. Gerald Ford pardoned Richard Nixon, and damned himself and his party as a result. The former President Bush pardoned former Defense Secretary Casper Weinberger and others who were set to go to trial in the Iran-Contra affair, thus assuring that the public would never receive an accounting of what transpired. Among those also pardoned was Elliott Abrams, who went on to be George W. Bush's Special Assistant and Senior Director on the National Security Council. The former President Bush issued the pardons after the 1992 election, when he had nothing left to lose politically. (Although, he stood to lose if the truth about Iran-Contra came out, since he was said to be a key player.)
The timing of the pardon depends on how much the current president is concerned with the reaction of his own party. The Republicans have to know that a Libby pardon will taint them even more than the Watergate scandal did more than 30 years ago. They should be joining Senate Majority Leader Harry Reid's call for Bush to pledge not to pardon Libby. It's in their self-interest and their party's longevity to do so.
If Bush pardons Libby before the sentencing or before the end of his term, his legislative agenda is over. Nothing that the Bush administration prioritizes will gain any ground in the next year and a half, and his own party will turn on him. (It's amazing more of them haven't already. What has Bush done for them?) More likely, Bush will gamble that Libby knows a pardon is coming and will keep his mouth shut, and a pardon will come in time for Christmas 2008, after the election is over. Bush will leave office with a smirk and Republicans will wonder why they ever supported someone who so carelessly damaged their party.
It's been said that the CIA leak case is the loose thread which could unravel the entire ball of string of the Bush administration's false case for going to war and its general lawlessness. Bush and Cheney know that the only chance they have to stop that is to keep Scooter Libby out of jail. So Bush will pardon him, not because he's a patriot (the excuse his father used in pardoning the Iran-Contra figures), not because it's in the national interest (it's in the national interest for the truth to come out!), not because justice hasn't been served (Libby received a fair trial), but simply because their asses are on the line.
More info: Libby - The Fall Guy