At this point, it seems that as long as there's no ground war, there's pretty much no chance of either side actually using nukes, and given that the attack site is close enough to the border that it can basically be dealt with through strategic strikes at little risk and cost, I don't think a ground war is all that likely. But perhaps that's just optimism.
It has a chance to escalate into a regional war though. A lot of muslims and hindus are fleeing such areas as well. India has welcomed the possibility of war, and Pakistan has stated that it reserves the right to use neuclear weapons. Probably rhetoric, but shi*t could happen.
