[Ninjaneer]

Dogs aren't considered to be pure (in terms of cleanliness). Their saliva nullifies a Muslims state of wudhu (ablution), which is what Muslims perform prior to praying the 5 daily prayers. Also, if they lick your clothes you can't pray in them till the affected area is washed and any impurity is removed. If they lick a container used for food (by humans) it too must be washed a number of times etc. before being considered pure for use again.

Touching / petting is ok, so long as the dog's saliva doesn't touch someone/thing then it's fine. Naturally keeping a dog at home is a challenge since they're playful and lick everything :P

Keeping them as guard or hunting dogs is acceptable. Dogs kept for other than these purposes detract from a person's reward for their good deeds, according to a prophetic tradition. In other words, it is believed that a person will be rewarded, but not as much as someone that kept the dogs for reasons stated or didn't keep them at all.

Those are pretty much the main reasons, but I'll mention some more info to expound on the subject.

First: in another prophetic tradition the angel Gabriel refused to enter the prophet's (pbuh) house when there was a small puppy in his house. In Islam it's believed that Angels frequent houses where God is remembered and worship is frequent, and this is seen as a blessing. So having a dog would prevent the angels from coming in. This shouldn't be seen as "how can a dog prevent an angel from entering?" but the principle is simply that angels won't enter, not that they can't enter.

Second: while Islam permits having them, the reality is that a Muslim is usually involved in many acts of worship. There's the 5 daily prayers, keeping an area for worship and the house clean, reading the Qur'an, and so on. So this complicates the matter of keeping areas clean. Also, many people take things to an extreme when it comes to caring for their pets. If one realizes the amount of time and money spent on pet care, or on beautifying them or pampering them in certain services for pets, it's apparent that the costs add up and it can even be to the detriment of familial relations and responsibilities. Focusing on your family is a big thing in religion in general.

Third: Islam teaches respect and care towards animals. There is a story of a man that came across a thirsty dog in the dessert. He filled his shoes up with water from a well and gave the dog water and God forgave that person of his sins just for that act of mercy. I just added this to show that we don't "hate" dogs and that the religion's teachings encompasses a variety of topics, including such simple acts as this.