No, Senator Obama did NOT say it in reference to Governor Palin. He said it regarding Senator McCain's rather recent portrayal of himself as a promoter of change, while his record indicates that it will be 8 more years of the same exact policies as the current administration.
Secondly, Senator McCain used the EXACT same phrase when referring to Senator Clinton's healthcare plan. I didn't notice anyone finding it offensive when a Republican used it.
He's referencing the fact that she described herself as a "pitbull with lipstick" upon accepting the nomination.
From the McCain camp:
The McCain-Palin campaign called the comments "offensive and disgraceful" and demanded an apology. The Obama camp said the remark was not a dig at Mrs Palin and accused the Republicans of a "pathetic attempt to play the gender card".
Asked how anyone could be sure the comment was directed personally at Mrs Palin, a McCain campaign spokeswoman said: "She's the only one of the four - the presidential and vice presidential candidates - who wears lipstick".