In Schhindler's list the man who runs the camp is shown as mad and unstable. In the bitsp the wife of the head of a camp doesn't even know that the Jewish people are being murdered!! These two messages perpetuate a myth that the average person in Germany 'did not know' or that those who were in the Nazi party must have been mad/abnormal people.
Amon Goeth was most likely a sadist and psychopath though. The message a teacher might extrapolate from SL is that people in their millions voted for people just like him, or people who promoted the Goeths of this world (the Dirlewanger brigade for instance) or allowed them free rein (as in the 'wild' phase of the development of the KL system). The development of the Third Reich's reign of terror in occupied Europe was accomplished by allowing people with a lust to kill the chance to do so. There was an appearance of absolute control and order but the reality was that everyone on the ground knew that they could do exactly as they wished by way of brutality, sadism, etc., and nobody would hold them accountable. Goeth himself was arrested by the Nazis themselves, accused of financial improprieties (keeping more than his fair share of the personal property of dead Jews, which was by law the property of the state). He was diagnosed with a mental illness by SS doctors.
There is a film of the meeting between Monika Hertwig (daughter of Goeth) and Helen Jonas, who was a Jewish slave forced to live as a housemaid in the Goeth house. The film shows them returning to the villa at Plaszow and talking about Goeth and life at the camp, as well as Monika's mother (whom Monika had loathed from the start of her conscious life). Helen Jonas described Monika's mother as a witless, bored, self indulgent woman, and described a scene where she came upon her reclining in the bath with cucumber slices over her eyes -- this at a time when not far from the bathtub people were dropping dead from starvation. Ruth Kalder Goeth committed suicide in 1983.
It is very unlikely that German people knew nothing or knew very little of the holocaust or of the camps. Many labour camps were located in Germany itself and German SS personnel were guards, telephonists, drivers, etc. Labour camps housed slaves who were marched into factories outside of the camp fences every day, factories that were often owned and managed and supervised by German citizens. Farms were ploughed by slaves and slaves tended livestock. Slaves were everywhere in Nazi Germany. People knew how they were treated and how cheap their lives were. Though letters home were censored, soldiers came home on leave.
As the war dragged on many of the camps became hotbeds of disease and epidemics and in some the business of burying (or burning) bodies was not seen to. An uncle of mine (army engineer officer) ended up stationed about 50 km from Bergen Belsen and could smell the decomposing remains of prisoners when the wind blew in the right direction. The British, who liberated the camp, used bulldozers to clear piles or corpses into mass graves and they torched the buildings. In addition to smell and contact with personnel who worked there, about 60,000 Germans (aryans) who were Communists or pacifists or gay or clergy or whatever were incarcerated. In the early days people were held and then released occasionally in terrible shape from places like Dachau (founded in 1933).
Kristallnacht involved popular participation, camps were known about and the brutality of the SS and SA too, or nobody would have had enough fear of the regime to keep from speaking out. (That is, if they cared enough about the Jews to speak out. Maybe that is too much of an assumption).
After the sermon of Prince Bishop von Galen, the murder of people deemed unfit for life was also known about. The Nazis could not lay a finger on von Galen (though they tried).
The Danes knew enough about the fate of the Jews to save the Danish Jews in October 1943.
My father served in the RAF and the Irish Army and he knew a lot of what was going on long before the camps were discovered -- it was maybe not something people were up in arms about in Ireland but people knew terrible things were being done. My aunts were in school in Paris and heard plenty; it was obviously more immediately important to the French what the Germans were doing than to the Irish but Irish people were conscious of small countries being overrun and especially Catholic countries like Poland. The details of the horrors of the east were probably not known to Irish people, but Dachau and the general hatred of Jews were known about.
I agree with ZZZenagain about the level of knowledge and also denial (you can't have denial without knowledge). Germans were anything but thick. They knew the war was going against them after Stalingrad -- the SS compiled reports on public opinion and everyone in power knew the population was feeling a sense of impending doom and questioning Nazi leadership. The propaganda was not being swallowed whole.
I agree too with your post of 12:49:30 (what is the best way to teach the salient lessons of the Holocaust?) I don't think it can be taught without reference to personal morality. The Third Reich attempted consciously to replace traditional morality (and even changed the meaning of words; see Himmler's use of the word 'decent') and replace it with a new brand of Nazi morality where the Third Reich was the highest value.