One obvious reason for the higher demand of shorter term CDs is the expectations of higher inflation next year when the effects of the huge deficit spending hits the economy. Higher inflation typically leads to higher interest rates as the Fed will try to keep inflation in check.
Another reason why people may be preferring shorter terms is the temporary provision of the basic $250,000 FDIC deposit insurance limit. It's still scheduled to return to $100,000 after December 31, 2009. If you have an individual account (not a revocable trust), principal and interest over $100,000 would no longer be covered in 2010 assuming the government doesn't extend or make permanent the $250,000 coverage. I haven't heard any banks allowing penalty free early withdrawals if the coverage limit drops. So those over $100,000 will either have to live with the uninsured deposits or take an early withdrawal penalty to keep under the limits.
Bills to make the $250K limit permanent have been in Congress through out this year. Refer to this post for my last status.
Even if the $250K limit is not made permanent, you can still can be insured above $100K through joint accounts and revocable trust accounts. Refer to this post for details, and this post for recent deposit insurance coverage changes that make it easier to set up revocable trust accounts that qualify for higher coverage.