Rumors in Iran are that he was involved in the killings but not directly in the Embassy ordeal. I can't quote anything on that, however...so take it as you will. I personally have no reason to think one way or the other, but I am quite certain that the Bush Administration has nothing to lose by demonizing Ahmadinejad. There was probably a lot of ballot-stuffing in the first round, especially in Tehran, but chances are that he won the second round fairly (more fairly, at least, than G-Dubs won Florida in either 2000 or 2004....). So, when Rumsfeld says that Ahmadinejad is 'no friend to democracy', he's not exactly wrong, but then neither is ol' Donny himself. Democracy was never the issue--profit was. As it is, I still don't think that even this Savage Death Cabal has much to gain from fucking with Iran.
Why? Well, here's one angle: China holds billions of dollars worth of US bonds--this, along with the fact that the Chinese Yuan is at a fixed rate to the US dollar, helps to keep the dollar from crashing in value. China desperately needs oil to continue economic growth, and Iran provides a good amount of that oil.
If Cheney were to give the go-ahead to invade Iran, the flow of Iranian petrol and natural gas to China would be disrupted, and the price of oil would consequently rise dramatically. These two factors (the disruption itself and the resulting increase in global oil prices) would create a tremendous headache for the Chinese, who thereafter wouldn't have any reason to keep their capital tied up in U.S. bonds or their currency fixed to the dollar. The Chinese hold a lot of sway here, and Bushco can't really fuck with that. So, they may still fuck with Iran, but it would be more than a tad suicidal, economically. I don't see it happening.
Unless there is already some sort of secret agreement between the Bush Admin and China (though diplomacy isn't exactly their strong suit)...