Conor Friedersdorf has a post up giving some of the reasons that libertarians don't succeed at the local level, and why that's a problem for them as they try to win at higher levels.
Unfortunately, he misses the main reason: on the whole, libertarian views just aren't very popular.
Look, it's very, very difficult to get a real fix on what Americans "really" want. As I read it, the evidence (which mostly consists of a lot of contradictory views) is consistent with the idea that Americans would like a somewhat larger government and also with the idea that Americans would like a somewhat smaller government. But I really don't think there's any evidence at all that Americans are longing for Gary Johnson's or Ron Paul's views on public policy.
That's particularly true, alas, on the issues with which I strongly agree with the libertarians: civil liberties. Again, the specific polling is murky, but at least my reading of it is that most people's commitment to most civil liberties is very shallow indeed. Especially when it's other people's civil liberties at issue -- that is, when it's perceived that various government actions are mainly targeted at someone else.
I do think that various libertarian slogans appeal to lots of people, but that's not because they're actually libertarians; it's because most people aren't ideological at all, and respond positively to all sorts of contradictory reasonable-sounding ideas.
I'm not sure what specific political advice I'd give to libertarians, other than to retain a realistic understanding of their status as a small minority, and start strategy from that point of view. I do think that they have a chance of winning occasionally on quite a few specific issues. My guess is, however, that libertarians currently are overrepresented in the blogs and similar areas of opinion leadership, and may well be about as effective as they can be given their numbers. But that's just a guess. If I were really pressed for advice, I'd probably say to pick the issues you care most about, pick the major party closer to you on those issues, and get involved with that party, working especially to push the party towards you on those issues. Or, join or form an organized group outside of the parties working for your position on those issues. Which, of course, is pretty much the advice I would give to anyone wanting to affect public policy.