Unfortunately, this stereotype is the one that is currently projected to the rest of the world. Most intelligent people know that generalisations and stereotypes do not apply to all members of a culture and common sense tells us that it is ridiculous to assume so. However, common sense is the least common of the senses and there are an awful lot of people who take the 'easy' option.
A comment I remember being made about the holocaust was that German propaganda had stated that 'all Jews were evil'. However, every good German citizen apparently knew at least one 'good Jew'. The numbers here just do not add up given that the non Jews in Germany pre war far outnumbered the Jewish population. Now it is possible (but very unlikely) that every German citizen knew the same 'good Jew' and he had a lot of friends. However, it is far more likely that there were more good jews than the propaganda stated...
Media images along with how you present yourself can form impressions of a culture. It alarms me that fundamentalists are being associated strongly with thier relevant religions to the extent that many beleive that what they beleive is that religion. It applies to Muslims and Christians equally. I know many muslims and none of them are terrorists but it is a common beleif that all muslims are.
The beliefs of fundamentalists from both religions are far removed from the actual beliefs of those faiths. Christianity and Islam have a lot in common and are founded on what are fundamentally the same basis (there is one god, the concepts of charity and compassion and so on). Indeed, Muslims recognise what they refer to as the 'three peoples of the book' these being Islam, Christianity and Judaism thereby recognising the common root.
I think the problem is that with a fundamentalist in political power (as occurs in both America and many middle east countries fairly often) the beliefs of that particular branch of fundamentalism gets amplified so that, for example, Sharia law is imposed or abortion/contraception gets banned. These give the impression (especially when it is a democracy) that all the citizens of that country agree with the politician's beleifs even if they do not.
This is why I beleive that there needs to be a strong seperation of church and state in any government. Government has no place in controlling how churches manage themselves (so long as they do not break the law) and the church has no right to interfere in government.
Ironically, in Britain we have an apparent link between church and state (the head of state, the Monarch, is also the head of the Church of England and is by law forbidden from practising any other religion) but an effective seperation because the monarch has no right (at present) to pass any law without the support of parliament.