The Straight Dope pretty succinctly covered the various responses to this question in 1998.
Response #1: It's impossible to gradually evolve a wheel
Biological features generally evolve gradually, and a quarter or half of a wheel would not only be useless, it would probably actively hurt the fitness of an organism. Cecil says the problem with this argument is that some organisms already have evolved wheels (which we'll get to in a minute), which doesn't really address the actual issue. The gradualist argument has been famously used for all sorts of complicated structures, such as the vertebrate eye. What good is a quarter or half an eye? Well, Richard Dawkins does a great job of demolishing this objection (see The Blind Watchmaker). Half an eye is extremely useful. Even if all it does is let you distinguish light from dark patches, it gives you a selective advantage over members of your own species who can't see a damn thing at all.
Another famous example is the wing. What good is a proto-wing? Ask the organisms that have one (e.g. a flying squirrel). Even if you can't fly, gliding can be really useful, especially if you live in the upper tree canopies. And often in evolution, a feature that was used for an entirely different purpose gets co-opted to serve a different function. My favorite example of this is the hammer, anvil, and stirrup, the little bones in your ear that let you hear. Those were once jawbones in a primitive ancestor, and they got recruited for hearing.
So I don't buy the argument that the impediment to evolving wheels is the impossibility of the evolutionary trajectory. Many organisms have much more complex, labyrinthine structures that were evolved gradually.
Response #2: They've already evolved!
Cecil points out the mother-of-pearl moth, Pleurotya ruralis, which will curl into a ring structure, head-to-tail, if attacked, and roll backwards at about 40 cm/s, much faster than its crawling speed. Wikipedia has a nice entry on other examples, including organisms that use gravity to locomote via rolling, such as the web-toed salamander and the golden wheel spider, and those that are self-propelled, such as the mother-of-pearl moth, the mantis shrimp, and the scaly anteater (shown here).
But the objection is that these aren't true wheels, in the sense of the artifacts, with axles. Cecil points to the bacterial flagellum, which is a rotary mechanism that bacteria use to whip a tail-like structure and move through liquid environments. While the structure is more like a wheel than the multi-cellular organisms above, the function is less like a wheel, which we normally associate with locomotion on a hard substrate.
While I think these examples are interesting, I don't think any of them demonstrate the existing evolution of a biological wheel.
Response #3: It's impossible to evolve an organic wheel because of biological constraints
Cecil's response is a nice explanation:
A more complex creature couldn't evolve the wheel. Every time the thing turned, the nerves and blood vessels serving it would get hopelessly twisted." Science writer Stephen Jay Gould makes essentially this argument in his book Hen's Teeth and Horse's Toes.
But this may not be an insurmountable obstacle. A flesh-and-blood wheel might use the umbilical hookup found on some merry-go-rounds. Tape one end of a piece of ribbon to a tabletop and the other to the bottom of a compact disc. Turn the CD over so that the ribbon drapes over the side. Now move the CD so that it "orbits" the ribbon clockwise, at the same time rotating the disc clockwise, two rotations per orbit. (Not the easiest thing to explain without diagrams, but think of it as an IQ test.) The wheel turns, but the ribbon doesn't twist. Would it be easy for a living wheel to evolve something along these lines? Maybe not, but who's to say it's impossible?
Right. I don't buy this argument either. Nature has found all sorts of ingenious workarounds for seemingly insurmountable engineering problems. I don't think the problem is the inability for the system to supply nutrients to a wheel-like structure.
Which leaves us with...
Response #4: Wheels are great for roads, but they suck for natural terrain
This seems like the most likely explanation. Natural terrains are chock full of divots, rocks, crevices, and so forth. When it rains, wheels get stuck in the mud. And for those terrains that are nice and flat (e.g. ice), wheels wouldn't work all that well.
An ancillary argument that I haven't seen expressed is that limbs typically serve more than one function, besides locomotion. Whether animals are on the top or bottom of the food chain, they tend to use their limbs as weapons, either to claw or kick. Wheels probably wouldn't work quite as well for these secondary functions.
Also, the ability to fold limbs inward gives most vertebrates the ability to tuck in their limbs to protect them from attack, and also the ability to assume different postures. Wheels likely wouldn't tuck or fold as easily as limbs.
So I think the best answer is the simplest: Selection pressure in natural environments on earth does not favor wheels, and it's that reason, and not constraints on physiology or the evolutionary process, that they have not evolved.
Of course, all of the constrains, the environment, and all selection pressures can be manipulated in a virtual environment. I think it would be very cool to set up an artificial environment and test an encoding system in a situation that allowed for wheeled structures to evolve and study how it happens.