I think it helps, in a bizarre way. His core supporters are just a mix of racists and personality cultists. The cultists literally do not give a shit about policies; this is like a reality TV show for them. The racists are probably more than satisfied with the amount of dogwhistle so far this campaign, and they don't have anyone else to vote for anyway, and after 50+ years in the political wilderness they're used to not getting everything they want.
Moderating his stances helps him appeal more to people who just can't stand Hillary Clinton and are looking for any sane person with a pulse to vote for instead. These are the real swing voters this election. Trump just has to waffle enough on everything to convince these people that he's not as crazy as he appeared at first. He can run a completely vaporous campaign and still look like a decent option in comparison to Hillary, to some people. This didn't work for Romney because unlike Clinton, Obama isn't a terrible candidate.
As for what Hillary should do... attacking him for flip flopping does not help her, it backfires IMO. She does the same thing and flip flopping makes him look reasonable by comparison to the shit he was saying in the primary. It won't help her with swing voters, since the swing voters will look at both candidates and say "they're both completely full of shit--but i already knew that." If anything, pointing out that he is changing his positions from the disgusting things he was saying in the primary only helps Trump.
Attacking him for being a sexist/racist is a better idea... Hillary needs to drive up turnout among minorities who don't usually vote and pro-choice women, and combined with the usual partisan democrats that's probably enough to win. Tie him to the KKK.
But to really attack him well, cutting into his base, I think you have to go with the Karl Rove school of politics: attack his strengths.
Arguably, Trump's biggest strength is he comes off as "pro-american." He says "America First." and "Make America Great Again." He claims to be a nationalist. A huge part of his base are nationalists.
Clinton needs to tie him to Russia and paint him as generally anti-american.
There's plenty of material. From his positive comments about Putin, to Putin endorsing him, to his hiring campaign advisors who are also tied to Putin. Just need to make Trump and Putin into best buddies.
The democrats also need to paint him as an international elite who doesn't have strong ties to America. He has business projects all over the world, even in the middle east. He has money stored everywhere, probably. Play up his alleged mob ties.
They should also attack him for his bankruptcies and other businesses. He presents himself as a competent businessman--paint him as an incompetent scam artist.
Hillary also needs to stand for something. Why is she even running for president? I wish she would talk more about climate change. Most of her voters are just anti-trump (including yours truly...). If she had a larger base this would be a blowout.