Spain has got to be the favorite going in, to me they have the best team on paper. Portugal's nice too, but I give the advantage to Spain, at least on paper...
One thing I notice about the Portugal squad is that Scolari has picked way too many offensive players:
http://en.wikipedia.org/wiki/Euro_2008_squads#.C2.A0Portugal
No. Pos. Player DoB (Age) Caps Goals Club
1 GK Ricardo 11 February 1976 (32) 75 0 Flag of Spain Real Betis
2 DF Paulo Ferreira 18 January 1979 (29) 47 0 Flag of England Chelsea
3 DF Bruno Alves 27 November 1981 (26) 11 1 Flag of Portugal Porto
4 DF José Bosingwa 24 August 1982 (25) 8 0 Flag of Portugal Porto [7]
5 DF Fernando Meira 5 June 1978 (30) 49 2 Flag of Germany Stuttgart
6 MF Raul Meireles 17 March 1983 (25) 9 0 Flag of Portugal Porto
7 FW Cristiano Ronaldo (c) 5 February 1985 (23) 55 20 Flag of England Manchester United
8 MF Petit 25 September 1976 (31) 54 4 Flag of Portugal Benfica
9 FW Hugo Almeida 23 May 1984 (24) 9 2 Flag of Germany Werder Bremen
10 MF João Moutinho 9 September 1986 (21) 13 1 Flag of Portugal Sporting CP
11 FW Simão 31 October 1979 (28) 61 15 Flag of Spain Atlético Madrid
12 GK Quim 13 November 1975 (32) 26 0 Flag of Portugal Benfica
13 DF Miguel 4 January 1980 (28) 47 1 Flag of Spain Valencia
14 DF Jorge Ribeiro 9 November 1981 (26) 8 0 Flag of Portugal Boavista [8]
15 DF Pepe 26 February 1983 (25) 3 0 Flag of Spain Real Madrid
16 DF Ricardo Carvalho 18 May 1978 (30) 43 4 Flag of England Chelsea
17 FW Ricardo Quaresma 26 September 1983 (24) 21 2 Flag of Portugal Porto
18 MF Miguel Veloso 11 May 1986 (22) 6 0 Flag of Portugal Sporting CP
19 FW Nani 17 November 1986 (21) 13 2 Flag of England Manchester United
20 MF Deco 27 August 1977 (30) 53 3 Flag of Spain Barcelona
21 FW Nuno Gomes 5 July 1976 (31) 69 28 Flag of Portugal Benfica
22 GK Rui Patrício 15 February 1988 (20) 0 0 Flag of Portugal Sporting CP
23 FW Hélder Postiga 2 August 1982 (25) 32 10 Flag of Portugal Porto [9]
You have three central forwards, another four attacking players (Simao, Nani, CR, Quaresma) and then Deco and Moutinho listed as MF who are also more offensive-minded than anything else...
So whether they have a deep and strong enough defensive midfield is the big question