As anticipated by this author, the DoD is now debating the broad use of loyalist paramilitaries in Iraq. Newsweek reports on this active debate. As the senior officer who leaked to Newsweek stated, "We have to find a way to take the offensive against the insurgents. Right now, we are playing defense. And we are losing."
The problems with this decentralization strategy are legion. A major one is that the target minority (religion and ethnicity) isn't an isolated powerless subset, rather it is part of a larger majority in the Middle East and an ascendent revisionist movement. The second major problem is that the US will puncture any remaining claim to moral superiority (see the brief on Boyd for more).