I think Saddam's Islamic stance in his later days was an attempt to solidfy popular support in an time when people, such as bin Laden, were gaining support and calling for the overthrow of secular dictatorships and authoritarian regimes in the area.
Wasn't Northern Iraq under the control of the Kurds at the time?
Point taken about bin Laden working with any enemy of the US. Similar to use working with the Soviet Union in WW2 to oppose a common threat.
Zarqawi had a cell operating in Baghdad, not just northern Iraq. The Baghdad bunch was mostly Egyptian as I recall. They decapitated a nun there before the invasion.