This is somewhat disputed. All sources agree, that there were small communities of christians several places on the arabian peninsula, and through his travels (Muhammad was a merchant and travelled with caravans in his younger years) he must certainly have come into contact with christians. BUT: Most likely they were coptic christians, and most likely he met a lot more jews than christians. From the Koran, It's very clear, that he had very little understanding of, what christianity is about. He believed (as do the copts) that Jesus wasn't really crucified (that was an illusion), he believed christianity to be very much more closely related to judaism than is actually the case, and he believed the Holy Trinity to be God, Jesus and Maria. There are also signs, that the version of christianity that he knew, was even more "unorthodox" that the coptic kind, as in the Koran he alludes to an apochryphal (sp?) anecdote about the infant Jesus giving life to three little birds, that comes from a gnostic text, that has only recently been rediscovered. He really didn't have a clear understanding of biblical chronology and geography at all, and seems to have the Pyramids and The Tower of Babel mixed up. But in summary: There were Christians on the Arab Peninsula around the time of Muhammad's birth and Muhammad knew (of) them, but Islam is very much more heavily influenced by judaism, in a number of significant ways Islam is an adoptation of judaism (kosher --> halal, for instance). The muslims even prayed towards Jerusalem for a period of time.

Source: Andrew Rippin; Muslims