Here are several reasons why this development can damage the government.
1. It will return the focus to the Attorney General's role in the decision to halt the SFO investigation. On the same theme, it looks like Lord Goldsmith should have a tricky last day at work tomorrow.
3. Given that BAE are likely to argue that they were merely a contractor it is plausible that it will be the British government that will be asked to reveal information that they have previously kept hidden.
If there are no skeletons are hidden, there is no reason why Brown shouldn't co-operate with the US anti-corruption investigators? On the other hand wouldn't it be embarassing if British officials were extradited to face trial in the US on corruption charges. More fascinating comment and discussion here.
Blair and Goldsmith's departures leave Brown horribly exposed - drowning?