1- A soldier can carry about twice as many rounds of .223 for about half the weight of the same amount of .308 rounds.
2- .223 rifles are far more controllable in full-auto mode than .308 or .30-06 rifles
The .223 round, as others have pointed out, needs to be deployed under rather limited optimal conditions in order to achieve its maximum lethality. That means shot out of a 20" barrel and hitting an enemy within 150 yards or so. If the barrel is any shorter, and/or the enemy any farther away, our soldiers are giving up terminal ballistics performance that might get them killed.
I think 40 years with a sub-standard round is long enough. the XM8 might be an improvement over the M-16 in some regards, but it's perpetuating the use of a lousy batle round.
Either crash test and develop the 6.8 X 43mm round (which has as much energy at 200 yards as the M-16 round has at the muzzle, and will fragment at velocities down to 2100 FPS versus a necessary 2600-2700 FPS for the M-16 round) or issue M-16s (or XM8s) with 1/7 twist and 75-77 grain bullets that display better fragmentation than the 62 grain bullets the US uses.
Fragmentation of a 6.8mm bullet at 2100 fps will not produce interesting terminal fragmentation (I just ran the numbers to verify). Fragmentation in and of itself does not generate the lethality normally associated with short-range 5.56x45, as there are a couple different fragmentation modes and only one of those has high terminal efficacy. All the other modes are worse than no fragmentation at all.
It isn't fragmentation per se that causes the very lethal explosive fragmentation that you see from an M16, but amassing sufficient rotational energy density (joules/gram) inside the bullet that can instantaneously be converted to translational energy upon the structural failure of the bullet. For an M16A1, the threshold for this is around 2700 fps. You can still achieve the necessary threshold in the M4 with 14.5-16" barrels, but only within relatively close ranges (150m max). At 10.5", the energy density of bullet is too low at the muzzle to exhibit the fragmentation mode that the M16 is famous for.
In short, a fragmenting 6.8mm will not replicate the terminal efficacy of the classic 5.56mm M16, nor will a 10.5" 5.56x45. Using ultra-short AR15 barrels in particular is the height of stupidity. Adding a few more inches greatly increases the downrange efficacy of that particular weapon without affecting the handiness very much.