Very similar to the way Intel, years ago, rigged its Pentium CPU to excel on certain industry benchmarks.
http://www.classactionrebates.com/settlements/intel-pentium-...
http://www.classactionrebates.com/settlements/intel-pentium-...
http://www.anandtech.com/show/7384/state-of-cheating-in-andr...
So was it more damaging that a small percentage of cars were cheating on their emissions? Yes. But how much more damaging? Not much, especially since diesel cars are a very small fraction of VW's sales in the US.
Overall it is better that this group of cars were cheating as opposed to say Toyota's gasoline powered cars. The overall effect was so small it was not detected by the EPA's and CARB monitoring efforts on air quality which they model against the assumption that people are complying with the regulations.
I'm assuming this is due to the fact diesels run cleaner than gas powered cars? This is what I've been told my whole life, so it seems this part of the scandal has been forgotten or overshadowed by the bad deeds of rigging their cars?
At least in the U.S., diesels are generally dirtier. That might be because our diesel has mostly been high-sulphur, not the cleaner diesel that Europe has. Most diesel engines are built for heavy equipment, tractor-trailers, or pickup trucks in the U.S.
If they are really spewing 40x the limit, then we're talking emissions equivalent to almost 20 million cars that do meet the limit. This is around 1 to 2 years of total new cars sales, or roughly 10% of the active light-duty vehicle fleet in the US. Europe allows more pollution but I doubt it is 40x, and they have a lot of diesels.