This misnomer implies that the religion takes its name after a mortal being, namely, Muhammad and that Islam is no more than another "ism" like Judaism, Hinduism, Marxism, etc.
Another wrong implication of this misnomer is that outsiders might think of the Muslims, whom they call Mohammedans, as worshippers of Muhammad or as believers in him in the same way as Christians, for example, believe in Jesus. A further wrong implication is that the word Mohammedanism may mislead the outsider and make him think that the religion was founded by Muhammad and therefore takes its name after the founder.
All these implications are seriously wrong or at best misleading. Islam is not just another "ism". Nor do Muslims worship Muhammad or look upon him the same way as Christians, Jews, Hindus, Marxists, etc., look upon their respective leaders.