No, no, no. I could not disagree with the above poster even more. The hadith is correct, in fact, there is another one that goes on to state those angels will not visit the person that keeps dogs in their house. Again, let's be practical here, the dogs we have today are not the dogs Muhammad(saw) had running around like stray cats, which could contain diseases and everything else. In fact, one time in the mosque, a dog urinated in the mosque, and Muhammad(saw) saw the believers were disgusted and he looked at it as a very beautiful scenario, didn't even require water to wash it. (remember this is a ground OUTSIDE, not carpet like the mosques today where the smell would accumulate)
As Muslims, let's be a little more tolerant, if they have a dog and it is not in your living quarters, I say to allow it. In fact, I think to leave somebody out to dry that they can not have this animal because it is against your religion, is not the right thing to do here. I really do not support the fact of doing this, sometimes it is good to overlook small things in order for the bigger picture, with the news and everything, let's show the world we are understanding and can adapt to a certain extent to meet in the middle.
The sin of having a dog, if applicable (don't believe it is, these are DOMESTIC pets today, their dogs were more WILD) is on them for having it, not because you were nice enough to tolerate it. Muslims can not eat pig, if they bring pork in the house to eat, does this affect your deen?
Allah(swt) guide you in this situation, Ameen.