I believe our position is that Prophet Muhammad [saas] was the perfect man. But to clarify what we mean by this, we need to define the term "perfect man."
Perfect means, without flaw. But this presents a paradoxical problem, because the word "man" is defined as a creature who by his very nature is limited and flawed.
So, how to rectify this? Quite simply, we say that Muhammad [saas] was the perfect man in the sense that man errs, forgets, might do something wrong unintentionally, etc. But yet he was "perfect" in the sense that he was the "perfect act of submission to Allah." So he was the "perfect man" meaning perfect in his hearts devotion to Allah, in implementing His laws and Commands, but still just a "man" and liable to make a mistake, have an error in judgement, etc.
After all, human beings make mistakes, and we need to know how to deal with those mistakes. And even in the mistakes the Prophet Muhammad [saas] made, there is a lesson for us in the perfect way he dealt with them. For example, one mistake which the Qu'ran itself testifies to is when The Prophet Muhammad [saas] was engaged in giving dawah to a rich man from Quraysh, hoping to win him over and gain some support for the cause of Islam... but then the old blind man ibn Maktoom came up to him and started interrupting. This frustrated the Prophet Muhammad [saas] who turned away from the old man and kept trying to talk to the rich man. The rich man scoffed, and this irritated the Prophet [saas] who frowned at Ibn Maktoom. As a result, Allah [swt] revealed surah 80 of the Qu'ran , Surah Abasa, which corrected the Prophet Muhammad's actions. Now, the Prophet's intentions in the situation were good... He wanted a stronger member of the tribal society to embrace Islam, thus strengthening the religion in they eyes of the Quraysh, -because his heart was perfect and solely devoted to the cause of Islam, but his actions that resulted from the good intention needed to be aligned. So Allah [swt] informed the Prophet [saas] that he cannot guide anybody, but it is God alone who guides, and he should more concern himself with those who are earnest in trying to purify themselves for the sake of Allah [swt] rather than the arrogant who are not really interested.
So this, hopefully, should clarify the position Muslims have on Muhammad's "perfection."
And Allahu 'Alim
Edit@the User Pedram, it is NOT clear that the verses in Surah Abasa are talking about two different people. I fail to see how it's even possible.
As to the claim that angels are also created and still perfect so therefore man who is also created can be perfect, this is a false analogy, because it's not the concept of "being created" which I am saying nullifies perfection, but rather, the concept of being a particular creation, i.e. the creation known as mankind, the human being. The nature of man is that he is fallible, makes mistakes, and is, basically imperfect. If there is a perfect man somewhere, then he is not a man, but some other creature that should be called by some other name.
It should be noted as well that the definition of the word "sin" needs to be clarified. The correct definition of the word "sin" is to knowingly disobey Allah [swt] which no Sunni or Shi'a holds is what the Prophet Muhammad [saas] did. He never knowingly disobeyed Allah [swt], but he may have, through his fallability, committed a mistake which, under normal circumstances was a sin, but because of his intention as well as his not having God's All-Knowing attribute, he is thus "blameless" and thus whatever act in question which would normally be defined as a sin is not a sin in this case but rather a slip, error, etc. -But it does not reach the level of "sin" which needs tawbah, or astaghfar, or which needs to be nullified in any way.
Hope this clarifies the issue.
Edit@Pedram: Ignoring your ad hominem attack, I will move on to your point that some human beings are better than the angels... The reason is not because some human being can be out there who never once committed a sin... in fact those human beings who are better than the angels is because if their astaghfar, their tawbah, and their good deeds which nullify the bad deeds, which, by the Mercy of Allah [swt] raises them in rank. In fact, many scholars have pointed out that a man may commit a sin which takes him to Jannah, and a man may commit a good act which takes him to the Fire. The sin which takes a man to Jannah is on account of his feeling sorry for it, his repentance, his astaghfar, and his meekness before His Lord. Such a man is better than a sinless man who never onced asked for forgiveness. The proof is that the Prophet [saas] used to advise his followers to make this du'a: "O Allah, you are the Forgiving One, and You love to forgive, so forgive me." Also, the hadith which states that if mankind didn't sin, Allah would destroy us and bring another people who sinned, and asked forgiveness so that Allah [swt] would forgive them. So Tawbah and Astaghfar are deeds which carry so much weight with Allah [swt], which the angels miss out on. So the righteous servant who rarely disobeys, but when he does disobey, is filled with sadness, and immediately makes Tawbah and returns to Allah is far more blessed in the eyes of our Merciful Lord.
Hope this clarifies the issue