Pakistan is at an inflection point. If it democratizes (and the phenomenon around Justice Chaudhry is actually a very positive one), things will get better over time and the country will be less and less fragile, and more and more at peace with itself and with India.
Musharraf has two options - he can try to entrench himself in power (which is what he seems to be doing, and which can never succeed) or he can do something unexpected - battle the extremist elements and secularize the government in a gradual way, while creating increasing space for political play to resume. Surrender on the Justice Chaudhry issue, so that he wins the war of history.
India needs to be extremely sensitive at this time. Avoid doing anything that can push Pakistan into even greater fragility.