Yes, more propaganda from the Bush Admin, but this time not in the United States, surprisingly.
Is it a big deal? As Andrew Sullivan says, perhaps the simple fact we're using it isn't. It's war, and propaganda has been used in all wars, ranging from the chest-thumping accounts of heroic stands that embellish some facts (see Jessica Lynch), to lies told to keep a good image going (see Pat Tillman), to stats mangled and twisted (see body counts in Vietnam) to outright lies (see Baghdad Bob). So perhaps the mere use of it isn't, and all it's doing is telling the story from one side (you know, just like that damned LIBERAL media does).
What does hurt us is now that this story is out, people can look at good news from Iraq papers and wonder if it's real. (I just know that someone is going to say this proves the press is anti-American since they revealed it, more on this later.) The mirror image of Abu Gharib abuse cases making the false Koran stories more believable, here the tilted stories will make real stories more doubted. The fact that the stories had been labeled as written by independent journalists and that we paid the Iraqi papers to run these stories add some more layers as well - not only was the news slanted, it was slanted by intention and acts - this isn't accidental bias, it was meant this way. It also certainly taints the idea of a honest press in Iraq, which can't help at all.
This tactic may have been used in all wars, but nowadays I question whether or not it can work. It's a tactic that, especially nowadays, is more risky, given the worldwide nature of news and easier access to it, as Sullivan points out, and also specifically given that the Bush Admin. has been caught with its hands in the tilting public opinion cookie jar many times now. Once bitten, twice shy; once lied to, always doubted. We don't seem to have a good handle on how to use propaganda well, and you have to ask can propaganda like this work now, excepting countries like China and North Korea? Or is it more likely to backfire and sow doubts, both about any future stories and about how the U.S. is handling Iraq?
Is this another example of the Bush people not knowing how to handle the post-war phase? I have to say yes. Also, notice the fairly incestuous route taken to get the propaganda out - the good ol'boy network ain't doing a good ol' job.