Here's what wiki had to say...

http://en.wikipedia.org/wiki/Abu_Musab_al-Zarqawi

"There are rumors that Zarqawi is dead because no sightings of him have been confirmed since 2001. In one report, the conservative British newspaper Daily Telegraph described as myth the claim that Zarqawi was the head of the "terrorist network" in Iraq. According to a U.S. military intelligence source, the Zarqawi myth resulted from faulty intelligence obtained by the payment of substantial sums of money to unreliable and dishonest sources. The faulty intelligence was accepted, however, because it suited US government political goals, according to an unnamed intelligence officer.[14] The Zarqawi myth has also been purported to be the product of U.S. war propaganda designed to promote the image of a demonic enemy figure to help justify continued U.S. military operations in Iraq[15], perhaps with the tacit support of terrorist elements wishing to use him as a propaganda tool (a sort of Al-Qaeda Ronald McDonald).

In March 2004, an insurgent group in Iraq issued a statement saying that Zarqawi had been killed in 2002. The statement said that he was unable to escape the missile attack because of his prosthetic leg. His followers claimed he was killed in a US bombing raid in the north of Iraq [16]. The claim that Zarqawi had been killed in northern Iraq "at the beginning of the war", and that subsequent use of his name was a useful myth, was repeated in September 2005 by Sheikh Jawad Al-Khalessi, a Shiite imam. [17]

On 24 May 2005 it was reported on an Islamic website that a deputy would take command of Al-Qaeda while Abu Musab al-Zarqawi recovered from injuries sustained in an attack. Later that week the Iraqi government confirmed that Zarqawi had been wounded by U.S. forces, although the battalion did not realize it at the time. The extent of his injuries is not known, although some radical Islamic websites called for prayers for his health. There are reports that a local hospital treated a man, suspected to be Zarqawi, with severe injuries. He was also said to have subsequently left Iraq for a neighbouring country, accompanied by two physicians. However, later that week the radical Islamic website retracted its report about his injuries and claimed that he was in fine health and was running the jihad operation."