I'm sorry, I don't see the Georgia conflict evolving into a nuclear war. Putin isn't that stupid and neither is Bush. Putin knows the USA would wipe Russia off the face of the earth. His goal is to have Eurasian supremacy and make Russia a great power again, not reduce it ash and radioactive ruin so he wouldn't fire first. Bush isn't that stupid either, he wouldn't risk a nuclear war over a little nobody nation (sorry to any Georgians) like Georgia, which has no strategic relevance to the USA whatsoever.
At most the USA might do a show of force and Russia via airstrikes against Russian targets in Georgia, but even that is far-fetched. I don't see a war, let alone a nuclear war from this at all, you don't go from, skirmish, to airstrikes, to nuclear ICBM's, it's not practical for either side and Russia would back down and wonder why on earth the USA was being so pushy. If the USA and the Soviet Union didn't go to war over bigger things, Russia and the USA aren't going to war over this.
Nuke's aren't used to make a point, nukes are used as a last ditch weapon when you see no other alternative. Yes in WWII there was an alternative, but it was an occasion when using nuclear bombs would result in LESS deaths. There isn't anyway for the USA or for Russia, in 2008 to feel like they need to resort to nuclear weapons. Tit for tat resulting in nukes is not plausible, unless you are going for one side outright invading the other and making a beeline for the capitol, something neither side would really be willing or would be able to do. Boring I know, but them's the breaks.
HOWEVER! Let's say Putin and Bush are dumber than a sack of hammers.
Damage wise, as others have pointed, the USA is going to flatten Russia, who wouldn't be able to compete on a nuclear level. Russia nuclear arsenal, while large, is poorly maintained and bringing it out of the closet for one last dance at the last minute isn't going to do Russia any favors. I disagree that the USA will become a third world nation, some major cities might be hit, but I doubt the Russian capacity to retaliate on a major level. It depends on who fires first, if it's the USA, then Russia probably wont be able to retaliate much, if its Russia, then I see a few cities being evapourated, and strategic sites bombed, but US anti-missile shields and a better arsenal will ensure many nukes never reach US soil. Europe is slightly different, they have missile shield to some extent too and a better arsenal (albeit an American controlled one). Also, would we be looking at a land assault?