(Note: I'm not an expert in Orthodox or Catholic theological spectrums, so will limit this discussion to the Protestant scene).
Non-Catholic/Orthodox 'Christians' can roughly be put into about ten theological categories. They are (from left to right): 'radical liberal' (eg. Cupitt), 'liberal' (Tillich, Robinson, Kung, Spong), 'neo-orthodox' (Barth), 'liberal evangelical' (Fosdick), 'radical evangelical' (Wallis), progressive/ Lausanne evangelical' (Stott), 'conservative evangelical' (Packer), 'fundamentalist' (Bob Jones III), 'sectarian' (the JW's), and 'cultish' (Koresh).
Now it's common to call everyone to the _left_ of one's theological position 'liberal'. But I'm ahead of myself. Let's define our terms.
Political liberalism (Latin liberalis, 'of a free person') is about liberty, equality, tolerance. Philosophers like John Stuart Mill believed that democracy, individualism, and the rule of law could be reconciled. Today political liberals argue about how a liberal society should accommodate illiberals - like fundamentalist Moslems, for example. (See e.g., John Rawls, Political Liberalism, Columbia University Press, 1994).
Theological liberalism is, broadly, the attempt to adapt religious ideas to modern culture and ways of thinking. These 'Modernists' say Christianity has always adapted itself to various cultural situations. (It is possible, by the way, for a person to be politically liberal but theologically conservative, and vice versa).
From this it's a short step to rejecting religious beliefs which are based on authorities other than reason. Liberals say that because the Bible was authored by people limited by their ignorance it can't be our sole authority for faith and conduct.
The scientific ignorance of the ancients, for example, caused them to believe in miracles: today we have other explanations for many of these events. (For example a distinguishing feature of most liberals is their doubt about the physical resurrection of Jesus). Higher criticism has questioned many assumptions about the Bible - like the authorship and dating of many of its books, the 'accuracy' of the biographical details of Jesus' life etc.
Liberals also tend to be somewhat humanistic and optimistic (though two world wars put a dent in that!). They accommodate easily to scientific 'advances' (like Darwinian evolution).
Christian liberalism varies from place to place and time to time. In the U.S. the Unitarians have been the most liberal major denomination. Recently it's the United Church of Christ (whose recent hymnbook de-genders Jesus!). Some Southern Baptists prefer to call themselves 'progressives' or moderates'.
Theologically, twentieth century liberalism has tended to believe that corrupt society corrupts people (rather than the other way around) so the Church ought to major on saving society rather than saving 'souls' (Rauschenbusch). 'Sin' is a product of apathy and/or ignorance. And the radical liberals believe that the traditional God is dead in this secular age (Paul van Buren, Harvey Cox. Bishop Robinson's Honest to God edged the New English Bible into second place among religious best-sellers in 1963). Today's 'Christian atheists', like Don Cupitt, do not deem it necessary to believe in the objective existence of God to account for the phenomena of Christianity.
As the conservative IVP Dictionary of Christian Ethics and Pastoral Theology points out, liberalism has been a healthy corrective in some areas. Yes, humans are 'made in the image of God'. Yes, the church ought to be 'an ethical - and not a solely spiritual - community' [1995: 553]. And I would add that it's also a corrective to a naive biblical literalism and fundamentalist privatism. Jesus was truly human. We must emphasise again the prophetic notion of social justice. And we ought to take the idea of 'natural (or general) revelation' more seriously.
But there are grave dangers in theological liberalism. The New Zealand Presbyterian Professor Lloyd Geering confessed back in the 1960s that 'many of the things I have said and believe are at variance with the Westminster Confession.' 'We can no longer draw a clear line between what is orthodox and what is not.' Today Bishop Spong is similarly contemptuous of the term 'orthodox'.
Liberals are more at home asking questions than providing answers. But authentic Christianity is about truth, not just opinions. Sin is more than alienation from oneself and others: it's rebellion against God. In ethics our aim is not simply to do what is good but what is right. And although I would encourage scholars to study the Bible 'critically' we must never forget that (a) our stance is primarily to be 'under' rather than 'over' the Word, and (b) we do not have a mandate to destroy the faith of the less theologically-literate.
Liberal preachers have tended to use Biblical texts as ornaments - attached to already arrived-at conclusions and convictions; a 'resource' rather than a 'source'. As an atheist put it: 'You hear what the psychologist says, what the historian says, what the New York Times editorial writer says, and then the sermon concludes with, "And perhaps Jesus said it best..."' [Martin Copenhaver, 'The Making of a Postliberal', Christian Century, Oct. 14, 1998, 937].
Liberals have little idea what Jesus and Paul meant by humanity's lostness. Evangelism and conversion are alien to their thinking: they did not tend to get excited about Billy Graham. But people need good news rather than simply good advice. And liberals can't seem to understand why Elijah would mock the priests of Baal, Isaiah deride Bel, Paul argue with the pagans of Lystra, or what 'it is a fearful thing to fall into the hands of the living God' (Hebrews 10:31) might mean.
The story of salvation is not simply an extension of human wisdom or an expression of common sense.
This all came home to me when I met a 50-ish man who'd been to a mainline Protestant church all his life, but had always been uneasy talking about his faith. Then he got 'converted', and attended an evangelical church. They sent him with some others on an evangelistic tour to Indonesia. There he had to give his 'testimony'. 'It changed my life. Now Jesus is a reality to me rather than an ancient nice man. I now want to share my faith. The Bible is alive for me. God speaks to me every day...'
Today liberalism has lost its appeal to laypeople - I don't know any liberal preacher today who gets the crowds Fosdick used to draw - but it's still alive in mainline seminaries (note, eg. the work of the Jesus Seminar). Folks today want the preacher to be certain about core Christian beliefs and values. Liberalism is just too sophisticated, too nice, essentially a university brand of Christianity. It is humanism in religious garb.
'Christ has set us free,' writes Paul to the Galatians (5:1). 'Stand firm therefore...' Followers of Jesus are called to be 'both liberal and conservative at the same time,' the Reformed Churches radio preacher Dr. Peter Eldersveld used to say. 'We are instructed to conserve our liberty... You might say that the whole Protestant Reformation was truly liberal, in the true meaning of that term. But in order to be liberal it had to be truly conservative - that is, it [called us] back to the historic [Christian] faith. In fact its "liberalism" [was in] its commitment to the gospel of liberty in Christ.' ['Liberal and Conservative', Back to God Hour, date unknown].
The last word is from an excellent article in the British Expository Times: 'The tragedy of liberal theology [is that] it has become all too skilled at telling us what is _not_ the case, what it is that we can no longer believe; but it shows little sign of being able to replace these negatives with convincing and intelligible positives. "Conservative" Christianity, at its best, combines a faithfulness to the founding traditions of the Christian faith, a proper graciousness, humility and teachability, an awareness of and an engagement with the intellectual and scientific issues of the day, and a confident message which people... can understand and rejoice in. In a word, while it may yet be far from perfect, it is the closest approximation on the market to the phenomenon of which we read in the New Testament - a phenomenon which changed the world.' [Colin Sedgwick, 'Where Liberal Theology Falls Short', Expository Times, October 1992, p.3].