Bombs Away was a terrible fit for the ticket. Wallace was a populist, great at riling up a crowd, and that is the kind of campaign he was running. The choice of Curtis LeMay, who was NOT a "GI's General" type of commander, to fill out the rest of the ticket made absolutely no sense from a marketing stand point.
Like Ariosto pointed out, too, LeMay immediately took the focus of the Wallace campaign off of the populist "There's not a dime's worth of difference between those two," and put it squarely on how Wallace would be unable to handle the War in Vietnam. Right off the bat Wallace had egg on his face. At least Palin made it through her first press conference before imploding. Sheesh. After that Wallace lost a lot of time trying to figure out what to do about LeMay, while the media reported on the General and not the Governor. That was when he dropped in the polls.
I really don't think Wallace could have made a worse choice. LeMay detracted from the candidate's strengths and highlighted his weaknesses, while saddling him with "more likely to blow us up than Goldwater" baggage.
Also, to Andre T's point, I don't think Wallace had such a low ceiling in 1968. Supposedly when the team was deciding on the running mate question, one of Wallace's people said something along the lines of "We have the Birchers no matter what, let's try to win some respectable votes." That was the point when they were leaning towards Happy Chandler who was still very popular in Kentucky and other parts of the upper south.
Honestly, if LeMay isn't around to detonate on the campaign and Wallace picked Chandler, I think you have a scenario where Wallace remains around 20% (his polling high mark that he hit in September before the infamous presser) and picks up ~100 EVs. All you would really need is for organized labor to take a little longer to jump behind Humphrey and start providing him with cash and volunteers so that they can settle on Wallace as their candidate and I think he makes decent showings as far north as Ohio, Indiana, and Pennsylvania.
I don't want to suggest that Wallace could win if it weren't for LeMay, but picking the general was, really, the point when his campaign took a nose dive.