A few points about the cartoons:
First, the cartoons are not just blasphemous. Blasphemy, to me, is an internal matter for any religion and not the business of the state or the polity as a whole. Here, however, the portrayal of the prophet as a terrorist was not primarily a statement about him and his life but a claim that Muslims are essentially terrorists.
As such, it is deeply racist. Except that racist is not the right term, because Muslim aren't a race. We need new categories.
In theory, attacking members of a religion is different from attacking members of a race because you can choose your religious beliefs but not your race. In practice, there is often little difference. The vast majority of people are born to their religion; they don't choose it. And in the context of a "war for civilization" where Muslims are being essentialized, uniformized, and criticized on a constant basis, the distinction blurs almost into nothingness.
It is not simply a matter of the cartoons' being offensive to Muslims. They are offensive to everyone who is anti-racist, and we all have an interest in opposing them. This does not mean keeping criticism of Islam and even of the prophet out of the public sphere, but this depiction crosses the line into a universally discredited discrimination. A newspaper has the right to publish even this, just as it has the right to publish offensive depictions of African-Americans, but it should be opposed when it does.
Also left unsaid in the various pious finger-wagging lectures about free speech so graciously delivered to Muslims by newspapers in Christian countries is an extreme double standard. It is true that Christian countries have seen art works like Andres Serrano's depiction of a crucifix in urine without erupting into violent conflagrations (although there was a great deal of protest by Christians), but those were works by individual artists. Please, show me the American or European mainstream daily newspaper that would publish something so defamatory about Jesus. Has the Inquirer or any other paper run a cartoon depicting Jesus sodomizing stacked naked inmates at Abu Ghraib or even Jesus yelling "Yee-hah" as he drops a bomb on Fallujah (much as George Bush might be doing today had he stuck it out with the Texas Air National Guard)? Until they do, all this talk about free speech is the sheerest hypocrisy.
The response from the Muslim world has been excessive. Of course, boycotting Danish goods is their right - our wonderful economic system is based on freedom of transaction - although it makes little sense to target all of Denmark instead of the paper in question. Calls for a government apology or for government action against the newspaper betray an unhealthy lack of appreciation for independence of the press. And, of course, burning down buildings and calls to kill people are unacceptable, as numerous Muslim leaders, including one of the key organizers of the march in Beirut that led to the burning of the consulate, have stated quite clearly.
But let's get a grip here. Although several people have been killed at this point, almost all of those killed have been protesters (and amid all the synthetic indignation about threats to us from "Western" sources, where is there any outcry over the killing of protesters in Afghanistan).
Anyway, this hardly compares to the violent invasion and occupation of two countries, killing tens of thousands directly and leading, in Iraq, to the death of over 150,000 people.
It is a little too much to see the perpetrators or supporters of those atrocities lecturing the victims about overreaction.
The great crusade and culture war the Bush administration has set in motion since 9/11 has had many unfortunate effects. One of the worst for the Middle East, other than direct occupation and destruction like in Iraq, may be the hardening of increasingly strict religious interpretations. That will harm the people there far more than those in Europe or the United States, but it also increases an already extreme polarization that is harmful for everyone. Bombing Muslims while simultaneously lecturing them is not the way to defuse this dynamic. That really ought to be obvious.