Ayatollah Khamenei has proven uncompromising. This is likely because the maneuvering taking place under the radar of attempted media coverage, particularly by Rafsanjani, is a threat to him more than Ahmadinejad.
The speech does not offer any hope to those who are challenging the election. The threat that the demonstrators "face the consequences" should be taken seriously, but Khamenei needs the acquiescence of Mousavi and the other candidates to call off the demonstrators since they are part of the establishment. An attack on the demonstrators without a statement from Mousavi that they should all go home would have consequences for the regime that could open the way for full destabilization. This weekend will be critical.
A couple of things are certain, however. Iran clearly has had the pretense of its brand of democracy stripped away. There is no freedom of speech. Newspapers cannot publish opposition materials, electronic media of all forms is jammed and the leadership is more than a little paranoid. All this must be kept in mind for future negotiations with the government about any issue.
What is strange among all countries of this type (Khazakstan, Azerbaijan, Russia, China and Venezuela) is that open elections would very likely return to power those who are currently in power. Medvedev and Putin are so popular that a real open campaign would be decided in a landslide in their favor. The same is true for Khazakstan, and probably true, though less so, for Azerbaijan. They need the pretence because they want to hold on to power more than anything else.
I remain more or less convinced that nothing will change in Iran, or if it does, outsiders will only see the shadows, like the shadow puppets of Indonesia, and nothing will be clear. Dealing with Iran in the future will be more difficult once the current situation settles down. But that is no reason not to continue with opening the door to negotiations. There is no other choice.