I have some observations, but first a request: please don't post one-line response after one line response. Make a considered point, and post it.
Firstly, I agree with Ansell - this is a situation which should be decided on principle, and the principle should be agreed upon before technical implementation is debated. There are a number of ways to obscure, hide, move, remove or display images. The question isn't "How is it done?" but "Should we do it?"
Some have suggested that the principle here should be to accommodate, at least in part, the religious doctrine of a group of people. I strongly disagree - it seems to me like many decisions have been taken in the past on Wikipedia directly in contravention of this proposed principle, and rightly so in my opinion. There are untold numbers of ways we can find to offend someone or many people, and this likelihood has never guided the insertion of encyclopedic material. The sheer number of offended people is a detail that is irrelevant to the principle - whether it is 3, 3 million, 300 million or 3 billion. The question is do we adhere to _our_ principles, against censorship based on values others would impose on us, or adhere to the principles of those others?
The spectre of compromise is just that - it is an illusion, constructed by those of us who assume that compromise with religious fundamentalism is possible. It isn't. Where have you seen it claimed that obscuring the images opposed by fundamentalist Muslims behind hat/hab will placate them? Does the petition say "You must make it so that if we don't want to see it, we don't have to?" It doesn't. The belief that a technical compromise will solve this problem without creating a thousand like it is mistaken - this thread, and the others, is a reaction in part to the recent significant publicity this issue has achieved. When its reported in the New York Times that Wikipedia removed the images of Muhammad in reaction to petitiononline.com and vandalism (and it will be), you can expect that our many other similar nationalism related problems will worsen through the precedent.
Finally, if you look through the archives of [[Talk:Muhammad]] and the FAQ there, you'll notice that practically every possible compromise has been considered and discarded. Not a single new argument has been made in any of the list threads about this subject - and all of these arguments have been considered and rejected by the editors who actually work on the Muhammad page. Before anyone on the mailing list again says "Hey, two emails in support! Be bold, go change it, and everyone will cheer because no one has thought of this marvelous solution before..." please consider that there are folks who have spent considerable time on the article but aren't signed up to the mailing list, and changes based on "We discussed it on WikiEN-l!!!!" probably won't go over well.
Nathan