There is indeed cause for Muslims to be outraged. Not that the Coalition bombed the wall of the mosque compound, but that the Sunni resistance entered the mosque with the intent of drawing fire. At that point it was the fighters who desecrated the sanctuary of the mosque, converting it into a military installation rather than a house pof worship. At that point, why should the Coalition forces continue to unilaterally assign a religious function to the structure when the occupants themselves have changed its status? Note that there is precedent: the Abbey of Monte Cassino was destroyed for much the same reasons in WWII.
Tacitus wrongly argues that mosques play a unique role in incitement of the resistance, however. There are enough examples of churches, synagouges, and monasteries as incubators of religious violence throughout history to illustrate the point, but that topic is best left for another post.
While it's essentially beyond dispute that the Falluja mosque was a legitimate target once it was occupied by armed fighters as a base from which to attack the Coalition troops, there is indeed a line that can be crossed. Tacitus recognized this earlier:
we are faced with the delicious prospect of an all-out urban assault on one of the worldwide epicenters of Shi'ism. Did I say delicious? Try awful: there will be no rational response from the Shi'a on this one. I remember one of my Shi'a co-workers having a minor freakout at the sight of American troops, in April '03, approaching the Imam 'Ali mosque -- the kufr are about to do something haram! -- and that was back when they were unambiguously liberating the place. Transpose the situation and the inculcated paranoia to an utterly non-Westernized populace without the capacity to distinguish between Saddam and Bremer, and you've got a recipe for a fanatical defense on the scale of Berlin '45. Not saying it will happen. Just that the ingredients are there.
I had a bit of a minor freakout myself last year when it was fedayeen holed up in the Tomb of Ali. The fact that the Tomb was scrupulously preserved is testament to recognition of Henley's point. There is a point at which we will unambiguously have fallen from the grace of our own self-interest, let alone Iraq's (however the two are bound). Muqtada Sadr has taken refuge in Najaf today and he will do his utmost to try and make us cross that line.