CNN's got a video about people's confusion with Obama vs. Osama, but it doesn't seem possible to link to it. This will at least take you to a page with the "Obama, not Osama" video link for a bit. (Oddly, searching for "Obama, not Osama" does not return that video as one of the results.)
Being named "Barack Hussein Obama" is at least a bit of a problem, and the instinctive politician reaction is to try to shy away from it, but I'd suggest the best thing to do is the exact opposite. Make sure every time from now on that Barack Obama is mentioned that Hussein is front and center. By the time the nominations and the election roll around, that'll just be his name; all the jokes, stories, and problems will be a thing of the past. If he shys away from it, the issue will always be something that can be slyly brought up. If there's any time to do that, it's now, when it basically can't hurt him to speak of; what are they going to do, organize a recall election based on the premise that the voters were unaware of their chosen candidate's name?
In fact, isn't what's going on suspiciously like that plan?
I hope it works. Disqualifying presidential candidates because of their middle name is just stupid. I doubt I'd ever personally vote for him, but I'd rather have the strongest candidates possible on all sides.