@embee: I'm aware of all that. I got that the first time. Also, I suspect all punishment is Level 1 - short term pain. Level 2 presumably cripples the subject for a considerable period, which you wouldn't want to do to your machine parts.
And the episode is constructed to give you that overwhelming sense of the inevitability and terror of the prison. It is a genius setup. I get the psychology of it.
But it's also made of glass, and the Public Order and Resentencing Directive is part of the hammer that is threatening to smash the system.
Despair is an enemy of the system. The designers know that. For one thing, if prisoner's despair, they commit suicide (which is a weakness in the system IMO). But the thing about suicidal despairing people is that they often want to take their perceived enemy down with them. So the designers are walking this fine line between hope and despair. The prisoners can't have hope, but they also can't let the prisoner's despair. There are carrots in the system as well as sticks.
"Revolutions are built on hope." All that needs to happen to take down the system is for one room to have the sense that can resist. As long as no one believes resistance is possible, you're right - every table is going to treat every other table as the enemy. No one wants to be punished. And even then, if the prisoners have some other hope at all, if they think that they can just work their time and leave then they'll probably not have the courage to take up arms.
But what happens when prisoners in despair get that hope? As soon as the Empire arbitrarily increased sentence lengths, they broke the one thing keeping every room from despair. So now the whole system is primed ready to explode. You can't afford to have a whole room in despair willing to rail itself, because if they are willing to rail themselves then they are also willing to fight. As soon as one group breaks the system, it will start to cascade. As long as the groups can only compete, they'll compete. But this is also the sort of shared environment of hardship that militaries use to forge special forces. As soon as the groups find something to cooperate on, the Empire will realize it's accidentally invented Sardaukar.
Another thing that struck me as potential weakness in the system is sorting the prisoners by cultural affiliation. By sorting out prisoners by home planet, you are importing loyalties that preexist the ones in the artificial culture you've created. And we can see in that desire for rooms to talk to each other that weakness, because without preexisting loyalties what would rooms have to say to one another? It's not like things are happening in their lives. It's preexisting feeling - for a brother, a friend, a fellow citizen - that motivates that.
Again, any hope but the hope of release and any motivations other than to win is dangerous.