I don't know which is worse: the idea that the US Army's chain of command knew about the prisoner abuse in Iraq, or that it did not.
If the chain of command knew about the abuse, it at the very least condoned it by not taking action. That significantly tarnishes the reputation of the US military. It's possible that this behavior was encouraged; I would not be surprised if there were explicit or implicit directions to soften up Iraqi prisoners from military intelligence or those mysterious "civilian contractors".
If the Army did not know what its troops were doing, it severely damages its shining reputation as an examplar of military professionalism. Mistreating prisoners is human nature. However, just because something comes naturally doesn't mean that it's ethical. Discipline means anticipating and counter-acting inappropriate impulses, and a military is about nothing if it can't impose discipline.