As'salamu Alaikum dear brother Adnaan,
According to the Hadiths, the Prophet, peace be upon him, commanded the Muslims to grow beards and shave the moustaches for the purpose of the Muslims being different from disbelievers. And during those days, Islam was still partial, and Muslims still had most of their families with the disbelievers. So, it was a way to further help the Muslims to:
1- Remove themselves, and disassosiate themselves from the pagans, and their ways.
2- To grow an independent Islamic community.
3- To look different from the pagans, especially during the times of battle.
But you see akhi, this is where the FARD (COMPULSORY) laws are disagreed upon.
All Muslims agree that all of the Glorious Quran's Laws are mandatory for all times and all places. But when it comes to the Hadiths Laws, it varries. Some are for limited times, and some are for all times and all places. When the Prophet, peace be upon him, says:
Narrated Nafi':
"Ibn Umar said, The Prophet said, 'Do the opposite of what the pagans do. Keep the beards and cut the moustaches short.' Whenever Ibn 'Umar performed the Hajj or 'Umra, he used to hold his beard with his hand and cut whatever moustaches. Ibn Umar used to cut his moustache so short that the whiteness of his skin (above the upper lip) was visible, and he used to cut (the hair) between his moustaches and his beard. (Translation of Sahih Bukhari, Dress, Volume 7, Book 72, Number 780)"This Hadith looks like to me to be for a specific situation, and for a specific solution. I mean don't get me wrong, the Hadith is still FARD.
But what kind of FARD? Should it be compulsory upon every Muslim man to grow a beard in the Islamic State? Most Muslims disagree with this. I've written an article regarding this subject years ago at:
http://www.answering-christianity.com/growing_beards.htm. Feel free to respond to it in details.
I hope this helps, insha'Allah.
Take care,
Osama Abdallah