I was very impressed (if you couldn't already tell) with Niebuhr's discussion of theology in politics. However, I think that Niebuhr was lacking in a few areas:
I think these were the mistakes that led Niebuhr to being a democratic socialist, rather than a democratic capitalist. What gives democratic capitalists a bad name is that we often tend to emphasize the role of government (which should be very little) but neglect to point out that there should be a strong role for non-governmental parties to play a regulatory role through informational campaigns and the like.
The third point - capitalism's ability to accomplish social equity - was probably not knowable to Niebuhr, but Sowell's Basic Economics makes a good case that capitalism can accomplish social equality faster than just about any policy. If the government is supporting a business, then it doesn't have any incentive to hire the best workers - it doesn't cost the people in charge anything to be racist, sexist, whatever. But when running a business, if you don't hire the best person, that costs you money, and if the guy down the street hires him instead of you, it may mean that you go out of business.
Many conservatives have made the mistake of saying that capitalism makes greed good. I believe that those espousing this should be shot. Greed is not good. However, capitalism at least makes greed less harmful to the rest of society. It is still totally self-destructive, and if completely unchecked, could lead to societal harm, but in the normal case, free market capitalism restricts the negative impact of greed on society. All societies have greed, it just hurts less in capitalistic countries, because we don't give our greedy people governmental authority (if we did we would no longer be capitalistic!)