I think the relevant questions are: how do our enemies define defeat and victory?

Specifically: how to Sunni insurgents define them? Al Qaeda in Iraq? The Mahdi Army and Badr Brigades? Run of the mill criminals? We've got five enemies out there in Iraq right now - and what they're after tells us a lot about what we need to do.

I'd venture that the Sunni insurgents define victory as: a retreat by US occupation forces from Iraq, dominance of at least the Sunni triangle, and enough of the oil revenues to stay in business. They'd define defeat as an unresisted occupation by US or Iraqi government forces (i.e. the local population turning to the US as the legitimate authority), economic privation through loss of oil money, and political or military domination by Shiites.

Al Qaeda in Iraq would define defeat as the crippling of their operational cells in Iraq at an acceptable cost to "the West." Note that crippling may not mean shooting everyone or putting them in jail - if they run out of useful targets or get run out of the country by the locals that's as much of a defeat. Victory (against the US) would consist of driving US troops out of the region on a permanent basis. Everything else is a means to that end.

The Badr Brigades and Mahdi Army are seeking a government of Iraq based in Shiite Islam, revenge for Sunni atrocities and control of oil revenue. Note that this is a goal local to their organization. They don't want oil revenue for Shiites, they want it for their members. They are subnational entities which command a patriotic loyalty from their membership. The Mahdi Army additionally does not wish to full under foreign occupation, so they've got to get rid of the US at some point. Defeat would consist of an oil sharing deal that favors Sunnis, or the inability of their armed and political wings to operate effectively.

Garden variety criminals simply want to turn a profit and remain alive and out of jail. Defeat is anything that interferes with those goals.

Thus far, I'd hazard a guess that the Sunni insurgency is headed towards defeat. It's only a matter of time before the weight of numbers begins to tell and the Shiites rip them to shreds.