Matthew Yglessias seems to be thinking along the same lines as I that it is a bit premature to talk about what is going on in Iraq today as meltdown and a sign of imminent American defeat. The truth is that insurgencies succeed best when they don't have to defend territory. By seizing control of both Falujah and Najif the Sunnis and Shiites have created convenient targets for traditional military operations.
But, as in the Tet offensive so many years back, the loser of this kind of fight is not the one who controls the ground after the fighting is over but who controls the spin. Even if the American coalition forces regain control of the situation and things quiet down and the June 30th hand-off happens, the illusion that things are getting better in Iraq has been dealt a serious blow by the events of the last two weeks.
It is that which could hurt the most.