Check out this great link on vegetarianism. Sheikh Hamza Yusuf Hanson says:
"Meat is not a necessity in Shari'ah, and in the old days most Muslims used to eat meat, if they were wealthy, like middle class—once a week on Friday. If they were poor—on the Eids. So traditionally Muslims were semi-vegetarians. The Prophet was, I mean, technically, the Prophet (SAWS) was in that category. He was not a meat-eater. Most of his meals did not have meat in them."
Vegetarianism is halal.
Meat is not compulsory.