I have my feet very firmly in the Kauto Star camp on this matter and for that reason I accept that I may be blinkered to a certain extent.
To my eye it seemed blatantly obvious that Kauto Star was miles below form in 2008. He had an injury scare before the race and never jumped a fence (From RP Comments in running: "not fluent 7th, not fluent 11th, hit 13th, not fluent 17th and next, hit 4 out, mistake last). Kauto Star might have been prone to the odd catastrophic blunder in his youth but he was never a bad jumper. That day he was though and I think it remarkable how he was able to get so close. I said he was beaten early on the first circuit because he never found his rhythm. I cannot understand the "he was taken out of his comfort zone by Denman" argument. This is a horse who has won Grade 1s over 2m, he is perfectly capable of travelling at any pace that Denman has the ability to set. If Kauto Star had come there tanking down the hill and then folded back up it then I would readily accept that Denman beat him on merit by grinding it out. The fact that Kauto looked beaten from the very first fence seems to suggest to me that he was just a little below par.
I was with a Denman fan at the time and the very first thing I did after the race was bet that Kauto would reverse the form in 2009 (admittedly made easier by Denman's heart problem), and the second was to back him for 2009.
On that subject, If you want a performance that was unbeatable then look no further than Kauto Star in 2009. He would have left any staying chaser in his wake when he sprinted clear in 2009.
Denman is a great animal but, as others have suggested, for all his great and admirable qualities, he was limited. He had to go left handed, he had to have softish ground, he had to have a test of stamina and so on. He had nothing like the versatility of Kauto Star. The reason that Denman is so revered is not for his ability but for his character. He was tough as nails and gave everything he had. The fact that he was able to win 1 Gold Cup and finish 2nd in another 3 is evidence of this. He was tough and brave but in terms of ability was just short of the absolute top level inhabited by Kauto Star.
You only need look at their records; Kauto Star has won more Grade 1s than Denman has races over a far greater range of distances, conditions, right handed, left handed, quick ground, soft ground, and over a far greater time period.
Denman was a fantastic horse but I honestly believe that comparisons with Kauto Star are laughable. He was very good at what he did but not in the same league as Kauto Star. Then again not many are.