I agree with SmallWhiteCat. The naivety on here and in the popular press about the current political situation is astounding. The Lib Dem supporters that are apparently leaving in droves are those who were never really LD Supporters to begin with - either left leaning floating voters who wanted to punish the Labour Party or students who were only really interested in the one aspect of the Lib Dem manifesto which was never going to be workable anyway even if they'd got into power on a landslide majority.
Anyone who voted for the LibDems for either of those reasons was always going to be dissapointed.
They are also only the junior partner in this coalition, so could only ever be a moderating influence and nothing else. They have done enough to soften some quite harsh Tory policy (delaying Trident, preventing the marriage tax breaks, preventing the inheritance tax changes which would have benefited only the rich, ensuring the income levels for CTC weren't as harshly cut as the Tories wanted etc) and have pushed forward at a faster pace some of the better ideas such as the increase in the tax threshold.
Yes, they've made mistakes - perhaps giving away too many opposition voting rights, allowing the referendum to be AV instead of PR - but this is the first time they've had to do it and they were working against much more experienced, Machiavellian politicians. I am actually surprised they have accomplished as much as they have.
Anyone who voted Lib Dem and didn't expect a Tory - LD coalition to pan out like this is either incapable of understanding the subtleties of politics or is extremely naive. Power is always about compromise - whether it is as part of a coalition or majority (The last three labour governments only managed to introduce something like 45% of their manifesto promises and there is the classic promise, caught on camera from George Osbourne that universal benefits such as CB wouldn't be changed or cut).
As for the local elections, local concerns are usually very different from National concerns - Tory councils are often better run than Labour or Lib Dem councils and people will vote differently in the locals than they will in the Nationals.
The Lib Dems have been burnt badly and will need to regroup and rebuild, but they will be able to take a lot of lessons from this coalition experience and I think over the next 10 years it will make them a lot stronger.