Man, there's an awful lot of anger and outrage about this in this thread.
Yes, maybe the Malaysian government's reaction was a little strong, but the Commonwealth Games are intended to promote cross-cultural exchanges and understanding, and not understanding that some Muslims may find dogs to be offensive runs contrary to this intention.
If this were the Malaysian government complaining about Scots having dogs as pets, then yes, I'd be partaking in your rage. But the express purpose of these games are to promote "goodwill and good understanding"1 between the participating nations, so the lack of understanding exhibited here is indeed at the very least an oversight.
Xavier: You speak of "others do[ing] nothing to respect our [faiths]", but we're talking about Malaysia here. This is a country with a significant Christian population, and a country with good interfaith relations where Christmas, Chinese New Year, and Deepavali have been declared national holidays alongside Islamic holidays.2
 The Commonwealth Games. BBC h2g2. [Online] http://news.bbc.co.u.../plain/A2020447 (Retrieved 4th August 2014)
 Windows on Asia: Malaysia - Religion. Michigan State University. [Online] http://asia.isp.msu....ia/religion.htm (Retrieved 4th August 2014)