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If you shoot a moose, bear, buck, I really don't care what; and place a bad shot, a 338 won't take him down. On the other hand, a 270 will drop a black bear perfectly fine if you hit him right.

A firefight is a lot different from hunting elk. Proper shot placement isn't always an option in a firefight at night at 300 meters with iron sights. Especially when the target is hiding behind rocks and shooting back. In that case I want the biggest, badest bullet traveling at the highest velocity to create a huge wound cavity and immediate incapacitation. When I hit someone I want them to stop shooting at me immediately, not ten minutes from now.

762 isn't going to “knock” someone over. That's a myth too. 762 (as far as potential) is better at extended ranges and it has more punch on a building, bunker, forested areas, even penetrating thin armor of vehicles like a BTR70 (with standard M80 ball). The problem is that a weapon chambered in 308 will weigh and recoil more, with target effect on a human not being any greater (in net often less).

You can carry 210 rounds 223 in the weight and volume of 120 rounds of 308. The weapon weighs less (by design you can make them lighter); you basically don’t need to compensate for range from 0-300 meters because the deviation from line of sight is 2 inches up and down. Ammo is cheap; training new people is easy on a weapon that isn’t that intimidating. Recoil is low and recovery times fast, and depending on design of the weapon easy to manage on auto. All this is packed into a weapon that essentially does more damage on a human than a much more stable and slower 762x51 round.

**** “In that case I want the biggest, badest bullet traveling at the highest velocity to create a huge wound cavity and immediate incapacitation.”

223 isn’t some magical caliber, nor is it perfect for everything, but it’s a caliber that in most situations offers good all around performance. The M4 “CAN” be operated from a vehicle. 15 minutes later you “CAN” be clearing rooms, and tomorrow you might be on a roof top where you “CAN” take a 200 yard shot. It’s a weapon you “CAN” carry for long times in hill country or jungles. How good would an MP5 work at 200 meters? How good does the M107 work at CQB? How nice and light is an M14 carrying it? 223 is simply a good standard caliber that works well in most scenarios, and you can’t pick and choose what you have that second like in a computer game switching between the nine different weapons one carries there. Those stating the obvious that caliber “X” can carry further or punch through more or whatever else, are playing the game of narrowing in the scope to a small band of variables they deem important that second to make their claim. The problem is that we’re talking about an “all purpose” caliber with mutually exclusive variables at work.

Proper shot placement isn't always an option in a firefight at night at 300 meters with iron sights.

Your argument strongly favors 556. The entire point of small caliber assault rifles is increased probability of hit. You are far more likely to score a COM hit under pressure with a light recoiling, flat shooting rifle.

And just for the record, there are almost no riflemen left in OIF/OEF shooting iron sights. Optics are everywhere, and intended to address precisely the issue you raise - increased hit probability under suboptimal conditions.