First, making pictures of alive things or fire is prohibited as a precaution. You see Christians (at least most of them) worship today in front of a picture or statue of Jesus(puh) and ask for their needs from him instead of God. This may happen to Mohammad(puh) easily, especially in the case of Arab polytheists, who used to worship idols.
Secondly, if you try to picture someone according to some narrations (his hair was this shape, he was tall etc), even in the best case, you can't make some people satisfied. Every person has a picture of him already in his/her mind, and this act will destroy it.
Thirdly, it is unnecessary. The important thing is not how he looks, but how he behaves, how he thinks. Overexalting a person is always dangerous for ideas, ideas and acts are the important things. Mohammad(puh) is important as a prophet yes, but not as a body; as an example. Allah and Quran is far more important. The Prophet(puh) is important because of these two, because he was the first and most true implementer of Quran.
Lastly, if the Muslims begin to make his pictures, non-Muslims feel more free to do so, they are making already, but with some fear from both radicals and public opposition. We can easily guess that, if they feel free, they will increase their mocking and insulting. Now, when somebody make an insulting caricature of Mohammad(puh), at least they see an opposition from some peaceful non-Muslims who see this as a disrespect for a belief too. If that support disappears, then some non-peaceful and provocateur people will increase their numbers and acts. This eventually will lead to a massive conflict.
If we speak about movies, who would be seen as a perfect artist to play the role of Mohammad(puh)? Whoever he would be, whatever he would be successful, it doesn't matter. There are no such twin of Mohammad(puh) on earth, both as look and behavior. Therefore, he would be seen as non-perfect, which will lead to an idea that the makers of the movie did this purposefully, to insult the Prophet and Islam.
These are my personal ideas, but I think they have enough reason for not to picture Mohammad(puh).