It would be wise not to confuse polemical categories with theological understanding. As /u/idjet will tell you, "heretic" is used very loosely in the medieval period and can cover quite a semantic range. Christian polemic certainly classifies Islam as a heresy, particularly in La chanson de Roland which was very popular in the 12th c. However, in practical terms, Islam was treated as another religion. There were not forced conversions (mainly), and, particularly in Spain, Christian and Muslim communities lived in very close proximity. Being a professed and unrepentant heretic was a capital offense under canon law; being Muslim clearly was not.

Further reading: Tolan, John Victor. Saracens: Islam in the Medieval European Imagination. New York: Columbia University Press, 2002.