I think the two biggest factors in this game are:
1) The hostile atmosphere
2) Whether the offense we saw against WKU shows up
If we can handle 1, and Penix has shaken off the rust and performs like he did last weekend, there's no reason we can't win this game, or at least have a decent shot.
Penn State is good, but I don't think they are quite as good as their ranking.
Penn State total offense is ranked 55. WKU is 14, and Cincinnati is 50. Iowa is 122 (Yikes - goes to show how much we beat ourselves in that game).
Penn State total defense is ranked 47. Iowa is 13, and Cincinnati is 27.
IU is 92 on offense and 57 on defense.
The point being is that, statistically speaking, we've already faced two better offenses and two better defenses than Penn State, AND we've played in a tougher environment already this year, though this one will probably be the second hardest of the year.