Why Do All Known Life Forms Thrive in Oxygen-Rich Environments?

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Yoni
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This is not exactly physics, but I'm interested in a physicists opinion:
Oxygen is considered a very active substance, very dangerous to many physiological processes of the cell. Even though or maybe as a result of this fact, we know that all life on Earth thrives on reach in oxygen atmospheres. Aerobic surroundings are inhabited by forms of the simplest bacteria, Why is this so?
Can complex organisms evolve in oxygen lacking atmospheres, or is there some rule that prevents this? If so, is there another kind of element that can substitute oxygen in it's role in the evolution of life?
 
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Physicists can not help you in answering your question; I think that Biochemists or Molecular Biologists can do that better.
 
Oxygen is used as a terminal electron acceptor in the electron transport chain to drive biosynthesis and ATP production.

Other molecules work, but don't release as much energy. We have enzymes to break down the dangerous by-products of using oxygen as a terminal electron acceptor (like catalase). Other organisms, namely some types of bacteria, don't have the enzymes necessary to prevent free radicals forming through using oxygen as a TEA, so they're anaerobic and live in very secluded places and use other molecules as a terminal electron acceptor.
 
Orginially, life began in an anaerobic environment. The transition to aerobic life is a very interesting story, one I wish I knew better. It involves cyanobacteria, and the evolutionary story behind mitochondria. The transition to aerobic respiration occurs around 2 Gyr ago, rapidly precipitated out iron from the ocean, and lead to the development of multicellular organisms.

One hypothesis as to why this occurred is that aerobic respiration leads to a much more efficient conversion of glucose to ATP (22 vs. 2, IIRC).