Frankly, EVERYONE is in the wrong here.
First of all, as far as Islam goes, it's blasphemous to show Muhammad. Not good at all. (Admittantly, for specifics reason [they didn't want Muslims worshipping him like the Christians did Christ, instead, focusing on Allah], but still). Matt and Trey KNEW THIS and INTENTIONALLY stirred the pot. They said - alright, you guys don't like this. We're going to do a WHOLE EPISODE about it just to piss you all off. Because we make South Park, and we can.
Now, yeah, that's South Park's thing. They offend and poke and prod, and it's funny. Hilarious, really. But intentionally offending a group for the sake of offending is a jerk move.
Of course, this doesn't give Muslim groups the right to threaten harm to ANYONE. They're welcome to protest and boycott, but violence is, y'know, not good. So, I don't think they're in the wrong as much as they went too far.
And as for censorship - censoring things to protect your cast, crew, and employees is a GOOD THING. Given the choice between putting people at risk and bleeping a few words, I'd bleep things a hundred times. But censoring ideas is not okay. So, they should have chilled out on the ending there.
So EVERYONE here is being a jerk. But none of them are TRYING to be jerks. They're just taking things to extremes. That's how it looks to me.