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Personally I don't think this will escallate. NK will probably get the word from China that if they decide to throw down, or even think of using Nukes, they're done with them. China has too much to lose from WW3, which that would set off.
NK has such an inferiority complex, even in the communist community, that they are pretty much screwed if things start up. If they pick a fight, it will be hard for China not to turn from them, and then everyone will start embarrgoing NK. When that happens they will probably end up having a regime change, either by covert assasination or the people just wanting someone new in play.
If NK decides to go nuclear, I wouldn't be surprised if the whole freekin area turns green. I don't think they have the capability to reach the US, but Japan could be a target as well. That's really the one area where I think things get scary, because no one really knows who will do what when the first modern nuke is used in war.
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