I think Carlito could be huge. Maybe as big as Rey Misterio and/or even Eddie Guerrero. However, its not him that needs to focus. When he is "on", he's on. I just dont think he has the backing from WWE. Maybe he's been in the dog house a few times, but so was Shawn Michaels and Triple H at points in there careers, and look at where they are now. I have a great idea as how to bring Carlito back up.....
Carlito's next fued could be with none other than Rey Misterio (after he gets done with Batista). Carlito cuts some promo's bout Rey being mentioned as one of the greatest Latin wrestlers of all time, and how he [Carlito] is never mentioned in that category. He attacks Rey backstage and before, after, and during matches until he is granted a match with Rey at a future ppv. Rey manages to win, but Carlito isnt done. He calls in his backup: Primo, his brother. Together they harrass and beat up Misterio. They run down his old tag team partner, Eddie Guerrero, saying the Colons were better than the Guerrero's ever were. After Carlito picks up a Smackdown win over Misterio with the help of his brother, Misterio gets some backup: Chavo Guerrero. Being a Guerrero of course, Chavo would take exception to the bad mouthing of the Colons and the attacking of family friend Rey Misterio. These 4 guys being great technical wrestlers couldnt put on a hell of a show and it would be a great fued, maybe even lead up to a final WrestleMania confrontation between Carlito and Misterio.
From there he could enter the I.C. title scene once again and from there, they could start to push him up to the top much like they did CM Punk. Have him fued with the likes of Jericho, and Punk and the others.
From there I think he could be a World title contender