Troops are amassing on the Columbian border, and Hugo Chavez is threatening war. Columbia's suspicions that Chavez has been supporting FARC rebels within Columbia have been confirmed, according to Columbian Gen. Naranjo. Ecuador is responding to a Columbian incursion with nationalistic fervor.
Conflict between Venezuela and Columbia has been in the making since Chavez was thrown in jail for an attempted coup in the 1990's, but domestic and leadership politics in Venezuela are exacerbating the issue. Chavez may be trying to kick up patriotic fervor, and thus his popularity, in hopes of continuing his revolution and his grip on power.
FARC (the Revolutionary Armed Forces of Columbia) are a left-wing anti-government militia that has given Columbia great difficulty for years. Columbia had known for quite some time that FARC had bases across the border in Ecuador, and in light of recent FARC actions, launched a strike against a safe haven in Ecuador, killing FARC's second-in-command. A laptop recovered from the site revealed a $300 million fund transfer from the Venezuelan government and (obviously) political support for FARC operations. Needless to say, the Columbians weren't happy.
The Ecuadoran response has been angry, which is to be expected. Ecuadoran troops have amassed along the Columbian border, and the Ecuadoran government has pulled its Ambassador. Were Venezuela not involved, this is the kind of crisis that could de-escalate.
But Hugo Chavez is making the situation dangerous. Chavez has begun a massive war of words against the Columbians; Chavez sounds ready for war. Ecuador is one of Chavez' allies, but Chavez is likely taking advantage of the situation for domestic gain. Chavez is calling the Columbian government liars and a "terrorist state" led by a "criminal," closed the Venezuelan embassy in Columbia, and used state-run television to ask his minister of defense to send the air force and 10 tank battalions to the border. He has promised war if the Columbians cross into Venezuela.
The US and Columbian governments are trying to delegitimize Chavez' military posturing by claiming to ignore his comments and actions, and painting the incident as bilateral.
Chavez has been hoping to achieve some sort of revolutionary leadership among Latin America; Chavez has a messiah complex (and has indirectly compared himself to Christ) and often uses sensationalist and brinksman rhetoric to remain relevant. Besides raw megalomania, I believe Chavez is looking for a boost in national support (the International Relations field has a rather well-developed theory of Diversionary War). After a failed attempt at a constitutional referendum to essentially raise himself to dictator status, Chavez has seen his popularity decline. With a failing state-planned economy (massive shortages of staples like eggs and breads are forcing long waiting lines, and old ladies are being arrested in Venezuelan airports for illegally smuggling in powdered milk), Chavez is likely looking to create a national crisis (or diversion) to whip up patriotic fervor, and thus support for his government. Chavez' brinksmanship and personal risk-acceptance has made the Latin American crisis truly risky; if he is to come off as tough as he'd like (he has even been bragging about his newly-bought Su-30's), he may have to show action if the Columbians defy him.
Fortunately, Stratfor tells me that the Columbian military has a significant size and experience advantage over the Venezuelan army; large enough, even, that it could hold the Ecuadoran forces in check to the south. Whether this will act as a deterrent against Chavez is worth asking, but if any fighting happens, it is unlikely to last long.
In a hilarious note, Fidel Castro is blaming the United States for the tension, accusing the US of trying to start a "Yankee Genocide."