Here is an informative post on a Roubini bond research report. It's a good read and discusses the historical perspective of muni bond defaults and presents the legalities that states face if they try to re-work bonds.
Update: Roger Lowenstein has an article on municipal problems. I don't feel as good now. But this point early in the article makes Meridith Whitney's dire default scenairo seem overstated:
These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.