Basically, Leo and Jed get in a huge argument about how to handle the Palestinian problem. Bartlet manages to broker a peace deal that involves around 20,000 American peace-keeping troops in Jerusalem, with Leo vehemently against the idea. They have a final, very heated row in Camp David, and Leo says that he should resign. Jed seems to be in agreement. Later that day, Leo has a massive heart attack, and is rushed to the hospital for a quadruple by-pass surgery. Jed changes his mind, and maintains that Leo remains as his Chief-of-Staff. In the meantime, the White House is extremely disorgniased, and Josh, Toby, Will and CJ keep messing things up. Finally, Leo comes to, and has a heart-to-heart with Jed, and says that even though he would gladly carry on the job, he is in no fit condition to do so, and that Jed should appoint a new CoS. Jed asks for a list of names, Leo says there is only one. It's CJ. I am woman, hear me roar.

The point I was getting at is.....has there ever been a precedent for a press secretary becoming chief of staff, which to me is the more difficult thing to comprehend.

No, there hasn't been. And in modern times, I don't think(though I might be wrong) there has ever been a two-term administration that's had the same press secretary throughout both terms.

The obvious promotion should have been Toby or Josh, obviously.