This old chestnut comes up regularly on cycling fora. For the full explanation go and buy a little book called The Escape Artist by Matt Seaton, the cycling journalist. You can read it in a couple of hours, it's excellent and it has a shocking twist at the end. Seaton explains all kinds of roadie lore and conventions including leg shaving.
It's to do with all those things; hygiene, dressings and mostly massage. It's also an aesthetic thing, part of the whole cult of cleanliness, perfection and style. Seaton says that any roadie who turned up with hairy legs would get laughed out of the peloton and that it's a kind of rite of passage for the road cyclist who is going from beginner to serious. He also suggests that an experienced cyclist can weigh up the likely strengths and weaknesses of an opponent by studying their build, muscle definition and size and so on and shaved legs make it easier to see the muscles.
Get the book, it's very good. It's Seaton's true story. But beware, don't read the reviews here as they contain a big spoiler:
http://www.amazon.co.uk/The-Escape-...=sr_1_1?s=books&ie=UTF8&qid=1340515569&sr=1-1