I have another explanation, one that I've worked out from several discussions on this topic with (who else!) my mother.
I'm going to adopt a strange notation for numbers:
(r, \Theta)
where r is the modulus of the number n, and where \Theta is how much we have to rotate ourselves about on the real number line about the origin, and as measured from the positive direction, i.e. a positive number has \Theta = 0 and negative numbers have \Theta = 180 \degree. However, instead of writing \Theta = 180 \degree, from now on I'll measure angles as "revolutions" to avoid ugly numbers, so a negative number has \Theta = 0.5.
Now there are an infinity of ways to express, say, 9:
(9, 0), (9, 1), (9, 42), (9, -27)
or -7:
(7, 0.5), (7, 8.5), (7, -2.5)
which all get us to the same place on the number line.
This was actually how the Greeks thought about numbers, in terms of their direction and their magnitude. (OMG VECTOR!) Not only that, but the Greeks defined multiplication too. So I'll use the Greek method of multiplying the numbers (p,q) and (r,s):
1. Start with the unit number, (1, 0).
2. "Scale" the magnitude of this number up p times, and rotate it by q.
3. "Scale" this magnitude of this number up r times, and then rotate it by s.
For example, multiply -4 and 3, which in our system is (4, 0.5) and (3, 0). Under our system, we take the unit number (1, 0), scale it up 4 times, and rotate it half a turn. Now scale this up 3 times, and rotate it zero turns. We get (12, 0.5), which is of course the expected result: -12.
It's now obvious under this definition of numbers and multiplication why -1*-1 = 1, because it's equivalent to doing half a turn to the negative side of the number line, and then half a turn again, so I end up on the positive side! Our ideas of numbers and multiplication came from the Greeks, so I'm sure you'll find that these definitions are consistent with what we normally think of as multiplication. So the answer to your question is: because the Greeks said so! (And for the numerous reasons mentioned above.)
This idea is similar to the idea to the multiplication of vectors in the Argand plane, but there, we don't limit ourselfs to multiples of one-half for the rotation.
This is a very weird explanation, I know.
[edit]Of course, shmoe's second argument is a lot like this one.[/edit]