It looks like Arnold Schwarzenegger is getting smart on the legal driver's licenses for illegal aliens issue:

Gov. Arnold Schwarzenegger is insisting that if driver's licenses are issued to illegal immigrants, the cards must specify that they are not lawful California residents, a requirement opponents liken to a "scarlet letter" that could pave the way for discrimination and abuse.
The issue has arisen as a major stumbling block in behind-the-scenes negotiations over legislation unveiled Tuesday by Sen. Gil Cedillo, D-Los Angeles, that would allow more than 2 million illegal immigrants to obtain licenses...

Xrlq has interesting commentary in 'Sen. Cedillo: OK, I Was Just Kidding About That "Public Safety" Thing'.