Hmm... I just posted on my blog about that little piece on the Today show and how it offended me that they thought it was so funny.
There's nothing wrong with knitting with pet fur. It's no different than knitting with sheep fur. Or goat fur. Or rabbit fur.. or ANY animal fur.
Dog and cat fur may smell like the animal when it's wet, but so does wool. Why is a barnyard animal's fur ok if dog and cat fur is not ok? Makes no sense to me. I don't know about you, but I'm not in the habit of wearing wet sweaters anyway, so who cares what it smells like when it's wet??
I say use whatever fiber you want, and be proud of the work you put into it!!