We haven't seen one of these with the major parties in decades, though I think it's a good bet for Denver this year with the Dems.
But if you're interested in how floor fights actually work, here's some live blogging from Dave Weigel on the Libertarian convention (also in Denver). If this happens with the donkeys in August, there will be a lot of blood shed (literally, in the streets, I suspect).
Given that Barr is a more credible candidate for the LP than many of its other candidates, then it leads to a couple of interesting questions:
1) Will Barr peel off enough votes from small-government conservative Republicans who are at best lukewarm about McCain such that he hurts McCain in 2008 in the same way that Ralph Nader's Green Party candidacy hurt Al Gore in 2000?
2) If McCain loses as a result, what lesson will the Republicans learn? If they learn that they need to return to core principles of fiscal responsibility, small government, etc., that would be a good result. On the other hand, if the Republicans conclude that their problem was that they didn't cater sufficiently to religious voters and that they need to embrace even more intermingling of church and state to appeal to "social conservatives", then this could set them up for several more years of electoral defeat as they continue to drive away even more former supporters such as myself.