Yes, collateral damage occurs. But targetting is done with a careful eye to MINIMIZING it. I heard an interview just the other day with a targeting specialist in Iraq. Part of the process is to estimate the potential number of civilian deaths in any given strike; if that number is too high, a different method of reducing the target is chosen. Our weapons are specifically designed for a particular effect, not just to destroy the largest area.
Deliberate, unnecessary damage, for the sake of punishing civilians DOESN'T happen anymore, at least not by design. I won't claim that every soldier plays by every rule all the time - I'm sure that there have been isolated instances of soldiers overstepping the bounds. But no commander worth his salt would order that. And shouldn't.
Your allusions to "political correctness" in our training and doctrine is a dead give-away that you don't understand the way wars are fought. He who does the most damage doesn't win; he who does the best job of defeating the enemy does. Protecting civilian infrastructure and lives isn't "political correctness", it's the best way to prove to the population that you are on their side. When they believe that, they will help you. That's the way you win against insurgents - you take away their support from the population.
I will take your word for that, but neither does victory. Ever since the end of WW II, we have not won the peace. The US goes from one hotspot to the next, fighting and winning the battles, but losing the peace. Maybe that is because instead of winning friends with tactics, we need to instill fear and respect by showing that we control life and death of all they love. It is what we did to great effect in WWI WWII, and Korea, until Truman pulled Macarthurs choke chain. We negotiated peace in Korea, it is still messed up, did the same in Vietnam and Iraq the first time, and got more wars from both. Using similar tactics of winning over the population, and Iraqization of the military, sounds and looks eerily similar to a war we walked away from in the 70's.