Sharif, who ended seven years of exile on Sunday, said he and his allies had decided "in principle" to boycott the vote unless judges purged under emergency rule were reinstated. Dismissed judges are still under house arrest.
Sharif, who might be barred from running because of criminal convictions he says were politically motivated, will meet Bhutto to try to persuade her to boycott, a party spokesman said.
A united opposition boycott would rob the vote of credibility and prolong instability in the country which is vital to U.S. efforts to fight al Qaeda and the Taliban in nearby Afghanistan.
But a boycott involving only Sharif and his allies, who include the second biggest religious party and the small party of former cricket hero Imran Khan, would be likely merely to tarnish the image of the election.
And an opposition split would help Musharraf, analysts said.
"If the opposition divides the benefit goes to the government," said political analyst Hasan Askari Rizvi.
Musharraf has to deal with other problems. By quitting as chief of the army, which brought him to power in a military coup in 1999, he has cut himself off from his main power base, even though a loyalist is the new army chief.
He faces wide resentment and must hope that hostile forces in the new legislature will not have the two-thirds majority needed to impeach him over his manoeuvres to hold on to power.
Musharraf, asked in an interview with ABC's "Good Morning America" if he might try to revive power-sharing talks with Bhutto, said he would assess the situation after the election.
Many Pakistanis appear disillusioned with everyone.
"All our leaders are corrupt -- Musharraf, Bhutto, Sharif ... Pakistan needs a completely new generation of leaders," saidUmar Arshad, 20, an IT worker in Lahore.
But investors on Pakistan's main stock market who like Musharraf's liberal economic policies were cheered by his decision to lift the emergency. Others were worried the Sharif boycott threat would prolong instability, dealers said.
The main index ended 0.24 percent up but off intra-day highs.
