There is a fundamental confusion underlying the policy of "constructive opposition" to Labour which Mr Kennedy has inherited from Paddy Ashdown, which is that there is a difference between consensus politics and real pluralism. Tony Blair has a genius for consensus politics, so long as he is allowed to decide what the consensus is. When it comes to the genuine sharing of power he has, despite some promising signs, not yet been tested.
The key to this is the joint Cabinet committee, on which Liberal Democrats sit with ministers. The Liberal Democrat grass roots hate it, because they think their leaders are simply lending their party's name to a public relations exercise. And, though they were wrong to oppose its being set up, because it might have turned out differently, they have been proved to be essentially right. So far, the Liberal Democrats have not got anything from Tony Blair that he would not have given them anyway.
Proportional representation for the Scottish Parliament, the Welsh Assembly and European elections? They were commitments that pre-dated Blair's leadership and which were in Labour's manifesto. Freedom of information law? Again, it was in the manifesto, and the joint Cabinet committee has failed to stop it being watered down, so that in too many instances it is weaker than John Major's "open government" code.
Half of the fault lies with the failure of the Liberal Democrats' liberal ambition; as a party, it is too stuck in the statist assumptions of the past and too little interested in seizing the real chance to defend real individual liberty. It has gone along with wishy-washy sentiment against fox-hunting. It has failed to make a stand against Jack Straw's illiberal policies on crime, knee-jerk anti-terrorist legislation, immigration and refugees. It is so much in hock to teachers that it cannot convincingly oppose the excessive prescription of David Blunkett's otherwise admirable attempts to raise standards. Surely a truly liberal party should be leading the charge against the frightening mentality that is driving parents, as we report today, to clear the bookshop shelves of Carol Vorderman's maths tests for three-year-olds?
Instead, the Liberal Democrats' vision of a "liberal education" seems confined to the issue of trying to restore free higher education for the largely middle-class families who would benefit from it in Scotland.
Mr Kennedy has made an impressive start on drugs policy, a litmus of liberalism, in putting Mr Ashdown's natural authoritarian tendencies behind him. But he has a lot to do if he is going to restore the party's real chance of political distinctiveness, which would be as the defender of true liberal values.
The other half of the blame for the failure of Lib-Lab co-operation to deliver, of course, lies with Mr Blair. The joint Cabinet committee is no more an exercise in sharing real power than are any of the 100 or so task forces that have been set up to co-opt businesses and leading Tories to the Blair Project.
That is the underlying significance of the Cabinet split over the issue of proportional representation in local councils. It is opposed by Cabinet heavyweights, including the Chancellor and the Deputy Prime Minister. But, if Mr Blair can deliver it, it could make a real difference to the quality of local decision-making in many of Labour's one-party statelets. Combined with directly-elected mayors, it offers the chance to break out of the morass of lethargy and incompetence in which local government is mired.
It may seem like a small issue on which to pull out of the joint Cabinet committee. But Mr Kennedy needs an excuse to do that anyway. If that will not do, surely Labour's plans for a House of Cronies to replace the House of Lords would serve just as well?
The Liberal Democrats would be strengthened electorally by demonstrating their independence of Labour, and it would be better for the country to have a strong party arguing for genuine liberal and democratic causes. Mr Kennedy should upset his activists this week by making clear that he is "coalitionable". But he should also upset Mr Blair by making it clear that a meaningful coalition can exist only between parties with different views. In the end, a Labour Prime Minister is more likely to be forced to move in the right direction by a strong and distinctive liberal stance than by allowing the Liberal Democrats to be used as cover for a bogus exercise in consensus politics.