This article by Leon de Winter of the Hudson Institute expresses very well my understanding of why the Muslim Street hates us: we give lie to the idea that God rewards the faithful and punishes the unbeliever. We are unfaithful, yet have virtually all of the material wealth of the world. Therefore, we must be in league with the Devil. They don't call the US the Great Satan for nothing.
Bringing in the War in Iraq on this point, it was said that Al Qaeda and Saddam Hussein would never have worked together, despite the neocon arguments about them linking up to stage a WMD strike against the US. I would like to point out that the US allied with the USSR to defeat Hitler. If we could work with Stalin, I don't think that it is too much of a stretch to think that bin Ladin and Hussein could put aside their differences temporalily. Heck, they could even do what we did which was take out the common enemy, then proceed to oppose one another at every turn.