Update: will they decide not to decide?

Veteran SCOTUS watcher and SCOTUSblog writer Tom Goldstein think they will decided not to decide:

The bottom line, in my opinion, is that the Court probably will not have the five votes necessary to get to any result at all, and almost certainly will not have five votes to decide the merits of whether Proposition 8 is constitutional.... 

The Justices seem divided on the constitutionality of Proposition 8 on ideological lines, four to four – i.e., all the members other than Justice Kennedy. For the more liberal members of the Court, there was no clarity on how broadly they would rule.
But Justice Kennedy seemed very unlikely to provide either side with the fifth vote needed to prevail. He was deeply concerned with the wisdom of acting now...So his suggestion was that the case should be dismissed. 

If those features of the oral argument hold up – and I think they will – then the Court’s ruling will take one of two forms. First, a majority (the Chief Justice plus the liberal members of the Court) could decide that the petitioners lack standing. That would vacate the Ninth Circuit’s decision but leave in place the district court decision invalidating Proposition 8. ... 

Second, the Court may dismiss the case because of an inability to reach a majority. Justice Kennedy takes that view, and Justice Sotomayor indicated that she might join him. Others on the left may agree. That ruling would leave in place the Ninth Circuit’s decision. 

The upshot of either scenario is a modest step forward for gay rights advocates, but not a dramatic one. The Court would stay its hand for some time for society to develop its views further. But combined with a potentially significant ruling in the DOMA case being argued tomorrow, the Term will likely nonetheless end up as very significant to gay rights.