Here's what I believe about Iran:
First, I support the concept of national sovereignty. There should be no interference in the internal affairs of Iran that fall short of invading it and declaring it a protectorate. This is not so much a moral principle as a practical one - attempting to change a country's government, with or without local allies, is an act of war.
I don't know whether the election of Ahmedinejad was legitimate. Very possibly it wasn't. Quite possibly it was - our view of the national mood both before and after the vote was skewed by the greater visibility of the Tehran population relative to the rural population.
The rural population is much more conservative than the city population. If we assume for the sake of argument that the vote was counted fairly, then what we are seeing resembles in some respects the situation that arose recently in Thailand. There, Thaksin Shinawatra had the support of the countryside, but was deposed by the capital city.
The difference in that case was that the Bangkok middle classes controlled the armed forces, and were able to take power through them. In Tehran, the questions appear to be whether the government is prepared to put down the revolt violently, and if so, whether the security forces will follow orders to do so.
Ultimately, the conclusion is that a government cannot survive on the support simply of a backward rural population, even if that population constitutes a majority. Note that the Islamic Republic was originally installed by the city population.
Of course, the protesters are not calling for an end to the Islamic Republic, only for the change of government they claim the election should have produced. That means they could win without the country falling into chaos (unlike, for example, the Chinese protesters of 20 years ago). If it becomes accepted that the election was rigged, there could be a very peaceful transition. Even so, if that were to happen, the proof that the Tehran mob can overrule the election result (honest or not) will not go away.
Maybe the more important conclusion to draw is that a truly national election is a very bad thing. The last few US presidential elections have produced great criticism of the "Electoral College" system, but that system is essential for producing an uncontested result. If the election is decided by the total number of votes over the nation, then it becomes too easy to add extra votes in areas where one site dominates. If you only count constituencies, then both sides can closely observe the process in the areas which are close, and in the areas which aren't, it doesn't matter, because the side which has the ability to rig the vote has no reason to. In Iran, suggestions that ballot boxes were stuffed with fake votes in parts of the country are plausible because the side that make the claims are not well-enough represented there to stop it.
The great advantage of democracy is that it gives the government enough legitimacy to stay in power without the massive intrusive social control that modern dictatorships normally require. Doubts over the count undermine that legitimacy, so it is essential that counts are visible enough to be trusted. That is much more important than that the system used is perfectly "fair". I am quite disturbed that, where we have grown to trust the fairness of elections, we are throwing away their verifiability in exchange for better fairness.