Tales of Iyad Allawi personally executing or chopping off extremities of enemy insurgents have all the earmarks of a disinformation campaign. That is what he has hired men for.
It does build up a strong mythos in the minds of his potential detractors, however. Some because they want to picture him as being the new Saddam Hussein, and some because they are trying to build backbone to more actively resist the new emerging Iraq government.
Chances are, that when the governing council finally does elect a representative government, that many other candidates for the prime minister post will emerge. These stories may be getting spread now, in an attempt to somehow influence the selection of the prime minister in that new government. But will that selection be because of gentle persuasion, or are fear and intimidation to be the determining factors?
Your dealing with Islamic Arabs here. Of course it will be built on fear and intimidation.