I know it's hard to identify with this 60 years out, but the fall of the small countries in the early war, and espcially the Fall of France, were earth-shaking events on a par with 9/11, at least for the Western countries. You can read any memior from the period and hear the fear and shock even today. Even in backwaters like Greece these events had an impact - I've read a memior by the wife of the Greek Prime Minister, and although she doesn't say much about the rest of Europe, the Fall of France definitely worries her.
Russia is a different story - with rigid control of the press by the government and population still struggling to survive and rebuild after WWI and the Russian Civil War, I just can't see the Russian troops knowing that these events had happened or caring very much if they did. Add to that a lack of primary accounts from Russian soldiers that weren't edited for Party Doctrine - it's hard to give a hard and fast rule.
I think the game as written handles the demoralization for the Allies very well but not as well for the Russians.