This is a Frequently Asked Question; the following is my previous answer:
This question may be asked so frequently (along with the infamous 0.999...) because no concrete axioms or definitions are ever given for the real number system until one studies higher algebra or real analysis; it is assumed that everyone knows what a real number is until then. The proliferation of these questions show that this assumption is no good.
For the sake of conciseness, I will not define what a real number is here, as only the algebraic structure of the real numbers is necessary to answer this question. The algebraic structure of the real numbers is what we call a field. A field is an algebraic structure that follows a finite set of axioms. These axioms define what statements are true and false in this system based on the laws of logic. You can find the field axioms here: http://mathworld.wolfram.com/Field.html .
Each line is preceded by "For all real numbers a, b and c, the following is true...". Note that the proper form of the additive identity and multiplicative identity is that it prescribes the existence of some number 1 and some number 0 such that the equations hold. These same numbers are then used to prescribe the existence of additive and multiplicative inverses.
Division a/b is just shorthand for a*(b^(-1)). So in your question, you are looking for 0*0^(-1). It is easy to show that there is no such number as 0^(-1) in any field. Suppose 0^(-1) exists.
Then 0*0^(-1) = 1. But multiplying both sides by 0^(-1) gives 0 = 0^(-1), which means 0*0 = 0 = 1. This is obviously false.
Suppose 0 = 1. 0*a = a for all numbers a. But 0*a = (1 + (-1))*a = a + (-a) = 0. Thus 0 is not equivalent to 1 and our sole assumption that 0^(-1) exists must be false. Tus the expression 0*0^(-1) is undefined in a field.
Proof by contradiction is very powerful for many types of statements.
As to the limit argument, note that you are evaluating a limit over a plane of the function f(x,y) = x/y. As we approach (0,0) along the x-axis, this limit is 0, but as we approach (0,0) along the y-axis, the limit diverges. Thus, the limit of f(x,y) at (0,0) does not exist, so f(0,0) remains undefined with no continuous way to complete it. The limit is not indeterminate for this function; it does not exist.
The expression 0/0 is said to be indeterminate as a limiting form because one can have many functions that approach the form 0/0 that have convergent limits of different values. For example, the limit as x approaches 0 of [sin(x)]/x yields the indeterminate form 0/0, but L'Hopital's rule reveals the limit to be 1. The expressions listed on this page: http://mathworld.wolfram.com/Indeterminate.html are called indeterminate because they do not have a fixed behavior when studied as limits of expressions.