By Greg Giroux, CQ Staff

This is both a heady and busy time for Democrats in Colorado’s Larimer County, which abuts the Wyoming border north of Denver. Their state is hosting the Democratic convention this week and is a prime battleground in the presidential race between Democrat Barack Obama and Republican John McCain . Democrat Mark Udall is favored to win a key race for the U.S. Senate, for the seat left open by retiring two-term Republican Wayne Allard .

Larimer County Democrats are also working this summer and fall behind House challenger Betsy Markey’s campaign to unseat three-term Republican Rep. Marilyn Musgrave in the state’s 4th Congressional District — in a highly competitive race that CQ Politics currently rates as Leans Republican.

Markey, a businesswoman and former aide to Colorado Democratic Sen. Ken Salazar , is viewed by Democratic strategists as one of their top prospects to win a Republican House seat this year, as they try to build upon the majority they won by picking up 33 seats since the 2006 elections.

To pull off what would be a mild upset, Markey must do very well in Larimer County, which includes Fort Collins and Loveland. It is the most populous of the 18 counties that comprise the district, which also includes Colorado’s eastern plains.

Markey attended and spoke at a welcoming reception Sunday night, on the eve of the convention’s opening day, at an art gallery in downtown Denver that was attended by a few dozen Larimer County Democrats. Markey rallied them to work for the election of Democratic candidates at all levels.

“Up and down the ticket it’s going to be a good Democratic year,” Markey said.

As throughout most of the conservative-leaning Mountain West region, Democrats in Colorado until recent years struggled to stay in competition with Republicans. But since 2004, the Democrats have gained the Senate seat held by Salazar, the governorship won by Bill Ritter Jr. in 2006, control of both chambers of the state legislature, and a narrow edge over the GOP in the state’s U.S. House delegation.

A Markey victory in the 4th would give Colorado’s Democrats a win in a Republican-held congressional district for the third consecutive election cycle. The party captured the western and southern 3rd District in 2004 with the victory by John Salazar , whose brother was winning an open Senate seat the same day, then gained a 4-3 edge in the state’s delegation in 2006 with Ed Perlmutter ’s open-seat win in suburban Denver’s 7th District. Salazar and Perlmutter are overwhelmingly favored to win new terms this year.

Markey noted that when she headed the Larimer County Democratic organization in 2002, there were five Republicans and two Democrats in the Colorado’s seven-member U.S. House delegation. “After this year, after this election, we will have flipped that, and there will now be five Democrats and two Republicans,” Markey said, predicting a victory for herself over Musgrave.

Colorado’s 4th isn’t the easiest turf for Democrats. In the 2004 election, President Bush took 58 percent of the district vote, in large part because of his big margins he rolled up in Weld County, which abuts Larimer to the east, and in the rural counties on the eastern plains. Larimer County was fairly close, backing Bush by 52 percent to 47 percent over Democratic Sen. John Kerry .

But Democrats were encouraged by the incremental progress they made against the strongly conservative Musgrave over the past couple of election cycles. In 2004, Musgrave won with 51 percent of the vote and a 6 percentage-point margin over Democrat Stan Matsunaka, whom she had defeated by 13 points two years earlier. Then, in 2006, Musgrave won with less than 46 percent — the smallest vote share for any winning House candidate that year — and a 3-point edge over Democrat Angie Paccione.

In an interview with CQ Politics after the Sunday reception, Markey said she was emphasizing economic issues and fiscal restraint. “I’ve held several town hall meetings focused on the economy, focused on my economic plans — and get other people’s ideas too — on how we need to jump-start the economy. That’s been a big theme in the campaign,” Markey said.

On energy issues, Markey described her platform saying, “we need to put everything on the table,” including an increase in domestic oil drilling. “But we also need to be very serious with both private and government investment in renewable energy, particularly in Colorado,” she said.