1. It was wrong to publish those cartoons if the Danish paper had any sensitivity towards a major religion.
2. Muslims are quite right to be offended. Calls for them to 'chill out', such as those heard on this week's 'Any Answers', don't appreciate the bigotry conveyed by said cartoons. That said some reactions have been a little extreme - see right.
3. Such material should not be made illegal.
The beauty of free speech is that society is able to openly censure material it finds wrong or offensive, without driving it underground. Issues have been highlighted that many would not have otherwise encountered. People who thought the cartoons funny or clever have had their views openly challenged, rather than allowing bigotry to foment in the shadows.
With regards to point 3, the words of Rowan Atkinson, uttered over a year ago, should not be forgotten(via):
"In my view the right to offend is far more important than any right not to be offended.