Dogs are thought of as ritually unclean, and this is particularly true of canine saliva and mucous (which seem to come in abundance all the time). Dogs are not prohibited per se, but because they destroy ablution and ritual cleanliness, they should not be allowed in any area of the house where prayers take place. Generally speaking, Muslims avoid dogs because keeping them in a separate area can be a very hard job. Note that this does not apply to cats, which are actually advised as companions by Islamic tradition. Islamic texts also warn that if someone owns a dog, and that dog suffers from incarceration, hunger or thirst, then that person's road to hell is paved, so it is a great responsibility.
Author = Karim O., Cairo