In entertainment circles, the current scandal barely merits consideration – there's an outside chance at an Oscars joke or two next year, if he handles himself really well (or really poorly).
Politically, it's a toss-up. Once he's been Governor of California, there aren't a lot of upsides to continued pursuit of office. Where would he go next? Congress? Being the Governator is actually, in many respects, a much more powerful/influential position that being one of 100 Senators. The presidency is right off the list due to his birth… Oh yeah, and Arnie finally figured out after being in politics, that politics sucks donkey balls.
I'm virtually certain that, beyond all other considerations, Mr. Schwarzenegger himself has no desire to remain in the political sphere directly (perhaps, someday, an ambassadorship or 'special envoy' role – where his face could open doors that sanctions and formal diplomacy cannot).
Will Arnie be back? Most definitely. But almost certainly via the Silver Screen.