US Deputy Secretary of State John Negroponte was due to meet General Musharraf on Saturday, and was expected to push him to roll back the emergency invoked two weeks ago, release thousands of detainees and hold elections.
Most opposition leaders were in custody, along with lawyers, and rights activists.
On offensive Bhutto, who had been under house arrest in Lahore since Tuesday to stop her leading a rally against Musharraf, went on the offensive as soon as she was released.
“There can be no fair and free elections under the emergency; there can be no fair and free elections when the chief of army staff is also president; there can be no fair and free election under the present Election Commission,” Bhutto told a news conference in Lahore.
Asma Jahangir, head of Pakistan's independent human rights commission and a fierce critic of Musharraf's, was seen visiting Bhutto's Lahore residence on Friday, having been detained herself as soon as the emergency was imposed.
The United States had hoped Musharraf and Bhutto would share power after the election but Bhutto has ruled that out.
“I can't see how I can team up with somebody who raises hopes and dashes them, who makes commitments and moves the goal posts. He talked about a roadmap to democracy and imposed martial law,” Bhutto said.