They are scared because Palin was able to motivate the group of Americans who are usually quiet, polite, and unobtrusive. Palin was, in effect, and probably unintentionally the basis of what is a growing movement of people who are sick of politics as usual. Sick of republicans, sick of democrats, sick of insane spending and trying to micromanage the lives of individuals. They are sick of supporting those who want to sit on their a**es and collect a check, while they work hard and struggle to take care of their own families. They are sick of the nanny state, both personal and corporate, they are sick of special interests, and they are sick of hearing people scream everytime the word "god" is spoken. I could go on, but you probably get the gist.
Palin ran on the republican ticket, but she is not representative of what has become the republican party- or maybe it always was the republican party, and many people just had no clue. Whatever the case, lots of people are extremely disenfranchised with politics as usual, and she is the antithesis of the standard politician.