Turns out Koo Kuang-ming's withdrawal from the race was a head fake (he never said he'd quit, just that he'd "suspend his campaign activities"). Here's the deal according to the Taipei Times:
So it's the younger Tsai Ing-wen vs. the elder Koo.
Chai Trong-rong (蔡同榮) dropped out of the Democratic Progressive Party (DPP) chairmanship race yesterday, saying his decision had met the expectations of independence supporters.A close aide to Chai, who wished to remain anonymous, told the Taipei Times that Chai thought it would be for the best if he and former senior presidential adviser Koo Kwang-ming (辜寬敏) could reach a deal on a single candidate because they are both die-hard independence activists.
However, with Koo showing no sign of backing down, Chai had no choice but to withdraw, the aide said. ...
Tsai Ing-wen (蔡英文), the other candidate for the DPP’s top job, called for party factions to cooperate yesterday.
She said all sides should work together to help the party select candidates for next year’s mayoral and county comissioners elections.
Tsai said the party can no longer feel sorry for itself following its recent losses. She pledged to reform the party’s structure if elected, and take advantage of the party’s experience over the past eight years to make it more “combative.”
The DPP is now facing an internal battle on the party's direction. Koo and those who support him believe the DPP must stress a path independence, because they believe that is the party's mission and founding spirit; without making this issue central, the party might as well not exist. Koo's circle fears that this position would be abandoned by the younger Tsai, ending the TI movement. This fear has basis in reality insofar that the younger generation in general has so internalized Taiwan's political democracy and de facto independence that they see the whole debate as meaningless  (I think if more of them read more Chinese news they might not be so complacent).
Tsai, for her part, and the younger generation in the DPP, have no intention of ceding Taiwanese sovereignty to China; but those of her age see a need to look like professional, pragmatic party to appeal to those voters, especially older light-blues and the younger voters in general, who just want to see a government that promises to avoid a war and help put food on the table (light blue voters don't see China as the aggressor it is; and Americans might call this later expectation socialist, but Taiwanese don't think of it that way).
So Tsai is seen by her supporters as more pragmatic and less ideological; Koo is seen by his supporters as a TI veteran willing to hold the line on the issues that are the core of the party. And for my part, I'm not sure if Tsai is going to really be able to shake things up in a good way.
Of course, with the election turnout expected to be less than 35%, especially in the wake of the Papua New Guinea diplomacy scandal, it's really difficult to tell who will come out on top. We'll have to see who is motivated enough to vote.