If it's blasphemy to call a teddy bear 'Muhammad', why is it OK to call your child 'Muhammad' then? This isn't intended to be a criticism, it's a genuine question.
Yes, I know it's an insult to make an image of the prophet, but a teddy bear is a teddy bear. It's not an image of anything other than a bear.
Why has the teacher been arrested? It was the kids who chose the name. Surely, if it's so wrong, their parents are the ones who didn't educate them properly?