They are winning because they have the more compelling narrative. We don't like to admit it, but there is a huge movement toward Islam. We think we can shoot a powerful idea to death, but the people we are fighting are more committed than we are, and actually believe in the morality of what they are doing. By comparison the rest of the world has no consistent position or policy. Those who know war could see this coming when we announced we were going to "liberate" Iraq.
Commitment. These monsters are committed to their cause of "Purification". They believe in what they do as a necessary evil, a noble cause for which they have been and are and will die for. This gives them support, it's not hard to believe the turn of events, like RodeoX rightly pointed out.
I'm not sure how things are gonna play out for Iraq, but one thing is almost certain, these orthodox delusional people will die for their cause, and that has immense impact on the situation.