Permit me to play conspiracy theorist-They may have vetted her and found out the pregnancy cover-up was true but determined that their really isn't a smoking gun and if the Dem's tried to use this it would make them look really bad. In this case having a female VP with baggage could help McCain more than one without baggage.
I guess the rumor up in Alaska has been that Palin wasn't pregnant at all and that she was covering for her 16 year old daughter. Sounds far-fetched to me but who knows.
You got to wonder how thoroughly the McCain camp was able to vet her considering that McCain only met in person once before the selection. At least with Romney, Lieberman, and Pawlenty McCain knew what he was getting.
People should also keep in mind that in the current political landscape (Assuming that Obama carries Gore's states + Kerry's NH) offers McCain no margin of error. If Obama wins just Colorado he's president. If Obama wins just Virginia he's president. If Obama wins just Nevada there's a tie (no clue what happens then). If Obama wins just Ohio he's president. If Obama wins just Missouri he's president. If Obama wins just Florida he's president. I don't know how Palin can help secure all of these states.