A lot of people are probably rushing out to buy Doris Kearns Goodwin's book Team of Rivals, after all the talk about how Barack Obama is emulating Lincoln's method of putting together a cabinet. It is well worth reading.
If Lincoln is your model, then inviting Hillary Clinton to be Secretary of State makes perfect sense. There are strong parallels between Hillary Clinton and Lincoln's Secretary of State, William Seward. Like Clinton, Seward thought he was much more experienced than Lincoln, whom everyone thought of as an unsophisticated country lawyer from the sticks of Illinois. Seward, like most people, underestimated Lincoln, however, and thought that he was going to dominate the administration. Seward also thought that Lincoln had usurped the Republican nomination for president that should rightfully have been his. Seward clearly thought that he could take the 3AM phone calls and pass the Commander in Chief test, and Lincoln could not. But Seward soon learned to respect and even love Lincoln, and he well understood who was boss, and Seward performed brilliantly as Secretary of State, at the same time being eliminated as a potential critic or rival of the president.
There are also some important differences, however. However distinguished a record Hillary Clinton has, it may not quite compare with Seward's who was a true elder statesman of the party. Hillary really doesn't have a lot of first-hand foreign policy experience. The job of first lady is not really a policy job. Also Hillary's position in the Democratic Party may not be quite the same as Seward's. As soon as Obama became the nominee, both Clintons became a declining power in the Democratic Party. Seward, on the other hand, continued to view himself as the most important Republican even after Lincoln's nomination. Therefore, at this point, Hillary Clinton may need Obama more than he needs her. She is a junior senator from New York a long way from getting much seniority in the Senate, and she is about to be bypassed on her signature issue of health care reform. Making her Secretary of State may restore her foreign policy credibility more than it adds to Obama's. It's also a little hard to imagine Clinton and Obama developing the kind of close relationship that Seward and Lincoln had. Lincoln used to spend many evenings at Seward's house, which was within walking distance of the White House, and they grew to enjoy each other's company tremendously. Clinton and Obama have such different personalities, and lingering animosities from the campaign, that make it less likely they will be able to work together well as a team.
But what such a move does do for Obama, as with Lincoln, is to place a potential critic of the administration inside the administration. As difficult a character as Hillary Clinton can sometimes be, Barack Obama no doubt feels more comfortable having her on the inside rather than on the outside.
Seward turned out to be a perfect choice for Lincoln. The troublesome figure in his cabinet was Salman Chase as Secretary of the Treasury, who never quite reconciled himself to Lincoln's view of putting the issue of union ahead of the issue of slavery. If Obama really wants to follow in Lincoln's footsteps, he might think of some really seemingly-irreconcilable people for important positions, like John McCain for Defense, or Mitt Romney for Treasury.