Yes, it’s unconstitutional. I understand the US Constitution isn’t a suicide pact. That’s why “free speech” doesn’t apply to such things as shouting fire in a crowded theater or lying on business contracts.
In this particular case, they were wearing medals that they didn’t earn (could also apply to honest mistakes, like a service member mistakenly wearing an extra device on a ribbon).
No one was financially harmed. The burden is on the state to show there is a compelling state interest in making this particular form of free speech a crime, and even then, the restrictions must be very well defined.
Obviously a lot of folk disagree with me on this, but you either want small government or not. Going around making things crimes simply because they are distasteful or cause someone mental discomfort is NOT small, limited government.
The stolen valor act does not deny anyone a constitutional/natural law right. There is no right to deceive.
BTW, the term “Compelling State Interest” is a radical leftist construct designed to prevent a sovereign and supposedly free people from making law that reflects our traditions.