c_o: He's a three star, plucked from the chain of command at the Pentagon, imbedded in the White House, working up policy issues and reporting directly to the President.

I'm not disagreeing. I just see the redundancy problem as more of a major issue. As you say, there are already individuals and offices tasked with (sorry, Sprachpolitzei) performing precisely the same functions as Gen Lute. First, there is the National Security Council of which the National Security Advisor is the principal after the President, whose personal assistant the NSA is:

The National Security Council is the President's principal forum for considering national security and foreign policy matters with his senior national security advisors and cabinet officials. Since its inception under President Truman, the function of the Council has been to advise and assist the President on national security and foreign policies. The Council also serves as the President's principal arm for coordinating these policies among various government agencies.
http://www.whitehouse.gov/nsc/

Then there is the Joint Chiefs of Staff:

Without Presidential or Secretary of Defense authorization, these officers cannot cause any action to take place, that is, they actually never control any troops. The actual function of the Joint Chiefs is to set policy for the services, recommend military policy to the President, and plan for future resource needs of the force commanders.
http://www.milnet.com/usmil.htm

In addition, the Chairman of the Joint Chiefs is the military advisor to the National Security Council

So now we have another personal assistant to the president who is supposed to coordinate foreign and defense policy for all of our little wars when there are already individuals and bodies charged with doing that. That this person is a general officer pulled out of the chain of command seems to be of less moment to me than the fact that such a person is needed at all.

Bush is big on controlling the message that he sends, always saying that whatever the Democrats do sends the "wrong" message to the "enemy". But the message that Bush is sending here is that none of the people in his administration who are responsible for policy coordination is competent to do this so lets find someone and stick him in an office down the hall and see if he can make it work. I'm surprised that he hasn't been canvassing Native Americans looking for a medicine man who can make heap big medicine.