The first reason that vanity presses are scorned by the mainstream publishing world is that there is no editorial process. Vanity publishers will publish anything if the author has the money, be it a family history to distribute to relatives, a guide for classes, or a volume of badly-written poetry. With a vanity press, there's no editor making an informed decision as to whether or not the manuscript in question is good, bad, or indifferent. The lack of a "gatekeeper" makes all works published by vanity presses suspect in the eyes of the publishing world.
The second reason is that many vanity publishers are crooks, plain and simple. Many vanity presses -- and bogus literary agents who work with or own vanity presses -- advertize in the backs of literary magazines and appeal to a frustrated writer's, well, vanity in assuring them that their opus will see print. What's not mentioned is that the costs will be high, the quality of the product low, and its chances of being taken seriously lower still. They also don't mention that they'll push the services of a "book doctor", who will charge you high fees to "improve" your manuscript. Some vanity presses will take an author's money, but never actually print the books. Vanity presses engage in a lot of borderline or outright scamming; they ensure their own profits, and the clauses in their contracts often create a situation where the author becomes their best customer.
The bottom line is this: the money should flow from the publisher to the writer, not the other way around. If you submit a manuscript someplace and the "publisher" writes back praising the work to the heavens -- but then says you need to pay an "editing fee" because your manuscript has a few weensy problems and they know someone who can fix it right up -- run fast and don't look back. Likewise, if your inclusion in an anthology is contingent upon your buying the anthology, you're dealing with a vanity publisher who is trying to take advantage of you. The same goes for many publishing contests (frequently poetry contests) that require a fee. Typically, these scams want you to pay $10-$50 as an entry fee, and the work of all the "winners" (read: everyone who shelled out the entry fee) goes into a large anthology that the "winners" are pressured to buy. These things sometimes get announced in the "community" section of smaller local newspapers, falsely lending legitimacy to the scams.
A few of the vanity publishers out there include:
- 1st Books Library
- American Book Publishers Group (to be avoided because they've scammed authors)
- The Amherst Society
- Commonwealth Publications
- The International Library of Poetry
- Iliad Press
- JMW Publishing
- Lee Shore literary agency -- works closely with vanity publishers to help disguise their nature
- Northwest Publishing
- Minerva Press
- poetry.com
- The Poets' Guild
- Poetry Press
- Poetry Unlimited
- The National Archives
- Gardenia Press
- GMA publishing
- Sparrowgrass Poetry Forum
- Trident Publishing / Washington House (an arm of American Literary Agents of Washington, a fee-charging agency that makes its money by charging authors rather than from selling books) (also, not to be confused with Trident Media Group, which is a legitimate and respected publisher)
- Vantage Press (Braunbeck says, "Vantage is run by a bunch of crooks!")
Self-publishing is not synonymous with vanity publishing. You aren't paying a publisher to run your work -- you become a publisher. If you have a track record with or knowledge of traditional publishing, either as a writer or editor, you can successfully self-publish a work that was deemed unpublishable due to commercial or genre concerns. For instance, Kelly Link's critically-acclaimed story collection Stranger Things Happen was published by her boyfriend, editor Gavin Grant, after she'd amassed a stack of positive rejections (and a couple of conditional offers) from the regular publishers (basically, most genre publishers thought her stories too literary and the literary publishers turned their noses up at the genre elements). Link and Grant were both experienced publishing professionals; what they did was self-publishing, but a very far cry from vanity publishing.
The key thing is that successful self-publishers have gotten enough objective external feedback to be confident that their manuscript is indeed worthy of publication and will be of interest to readers. They have done the market research to identify a legitimate printing company (such as Thompson-Shore) or are prepared to go the DIY route of using their own printing equipment (many chapbook publishers go this last route). They are prepared to competently edit, design, distribute and market the book themselves.
Print on demand (POD) is also not synonymous with vanity publishing. While some vanity publishers do run POD operations, there are also POD printers such as Lightning Source that will not do business with you unless you're an established editor (and can prove it). POD is a technology that is being embraced by the mainstream publishing world for its convenience.
POD has not improved the reputation of vanity publishing in any way. Vanity publishing, because it lacks standards and is rife with scams that prey on writers, will always have a well-deserved bad reputation. What POD has done has put small press publishing and self-publishing within the financial reach of many do-it-yourself writer/editors. Some of the results have been amateurish, of course, but some have been of very high quality. But before POD technology became available, they would not have been feasible.
And finally, a reputable publisher ain't just a middleman, but that's a topic for another node. | 
