This has got to be a blow to the president because Virginia's Governor, Tim Kaine, is Obama's hand picked Chairman of the Democratic party. The debate was over whether the state should accept $125 million in stimulus money in order to expand unemployment benefits to include part time workers for the first time as well as double the length of time people can receive benefits in some circumstances:

The vote mirrored a debate raging in state capitols across the nation over whether to accept the federal stimulus cash to cushion soaring unemployment rates in the worst economy since the Great Depression.
   
Republican governors in several states, including Mississippi, Louisiana, South Carolina, Alaska and Texas, say they will reject at least part of the cash because of mandates by a Democratic Congress and President Barack Obama to broaden state unemployment insurance programs.
   
Wednesday's vote makes Virginia among the first states to definitively repudiate the unemployment insurance expansion.
   
The vote was also a stinging rebuke to Kaine, Obama's hand-picked chairman of the Democratic National Committee, and becomes a major issue in Virginia's elections this year for governor and all 100 House of Delegates.