The Iranians saw that the military and economic troubles of the United States, as well as the oil supply crunch, had ruled out war and an oil blockade of Iran. Then, sure enough, the Americans blinked first in the game of chicken: they made the first concession by directly participating in the 5+1 talks with Iran.
The six powers still threatened more sanctions, but the Iranians, having weathered a lot of sanctions for a long time, are confident that they can survive anything short of the total Iranian oil blockade. Now, the Russians have said no to the West's idea of giving a deadline for Iran's response to the six powers' offer, further strengthening Iran's hand: Guy Faulconbridge, "Russia Says Opposes Deadlines for Iran Response" (Reuters, 24 July 2008).
What do the Iranians want? Iran is not North Korea, so it doesn't really need anything from the West except the recognition of its right to domestic development of nuclear technology, the end to economic sanctions, and peace. That's the minimum that the Iranians want the West to concede (cf. Elaine Sciolino, "Iran Offers 2 Pages and No Ground in Nuclear Talks," New York Times, 22 July 2008). The question is whether the West -- especially the US -- can find a face-saving way to make that minimum concession and how Iran's negotiations with the six powers will affect the balance of forces in other conflicts in the Middle East (Iraq, Lebanon, and Palestine above all).