It seems to me that the concept of political correctness is a lot like selfishness. A little prudence (self-interest) is a fine thing, but take this value too far and you get selfishness - an inappropriate disregard for others. I think political correctness might be the analogous overextension of politeness. It's fine to take others' sensibilities into account, and avoid causing needless offense, but to be inappropriately fixated by this one value constitutes political correctness. (Heh, maybe's there's something to Aristotle's account of virtue as a mean after all.)
So, as with selfishness, a defining characteristic of PC-ness is a distorted sense of proportion. One becomes obsessed with avoiding 'offense' at all cost. The costs here are most commonly bourne by humour and conceptual clarity:
To be disabled is not to be 'differently abled.' People who speak in this idiotic way are people who are willing to forsake contact with reality into order to pander to fools who are 'sensitive' about things they have no right to be sensitive about. An absence is not a special sort of presence. If I met nobody while hiking, it does not follow that I met somebody named Nobody. If I belong to no political party, it does not follow that I belong to the No-party party.
(I would add for those on the PC Right that the absence of religion is not itself a religion.)
Political Correctness can also come at the cost of justice, as when indigenous groups are given unjustified power and authority over other citizens. I've heard that scientists have to get iwi approval before they conduct (at least biotech) research, and applications for research grants have to explain how the research is geared towards meeting explicitly Maori needs. Now, I would prefer greater academic freedom, but if you're going to hold scientists to the will of society, at least make sure we're all represented, not only indigenous groups (i.e. iwi). And the matter of explicitly targeting the needs of a particular ethnic group is precisely what I was arguing against in my recent post on group welfare. This sort of political correctness privileges Maori New Zealanders over all other New Zealanders, and as such is unjust.
The politically correct also have an unfortunate tendency to overlook the use-mention distinction. There is a world of difference between using the word 'nigger', which is of course highly offensive, and merely mentioning it - which might be entirely appropriate in some contexts, e.g. discussing the language used in To Kill a Mockingbird. (Note that I merely mentioned the word in the previous sentence, as highlighted by the use of quote marks.) But you hear all sorts of horror stories about academics receiving formal complaints from people who fail to recognise this distinction.
Other times PC-ness is just trivial. I think David Farrar's example (of the MP who wanted to call her 'maiden speech' a gender-neutral 'inaugural speech' instead) fits into this class. It's harmless enough, though one might still criticize her lack of perspective in thinking such a trivial matter important enough to bother about. Of course, if it's just a personal preference then that's quite excusable. But if she meant to institute a widespread linguistic reform, well... surely our society has more pressing concerns.
P.S. This topic has also received attention today from About Town and Philosophically Made. The latter is particularly interesting, raising questions about linguistic determinism and such. I left a rather lengthy comment in response.