That sounds right. It's not as though Rumsfeld is likely to become the next O'Neil, so the 'keep insiders in' line won't explain much. Since everyone knows the scandal is getting worse, why not just save the one card you've got?
I like that answer better than the other explanantion: mute insensibility by the administration.
This has been a horror beyond horror. A swift, honest, and thorough purge followed by an apology may not redress the PR damage, but can go some way towards salvaging US honor. Let's hope that happens.