Point one: if animals didn't have emotions, it would be fairly meaningless to talk about being cruel to them. You can't be cruel to your computer, or your car. I'm not aware of any technique that is able to detect the presence of absence of emotions, but owning four cats, I can say that if they in fact do not have emotions, then fake emotions that they appear to have are very convincing. Like any good skeptic, I'm prepared to hear counter arguments (for example I don't see much evidence that goldfish care one way or the other about their owners - or even if they're aware of them), but I'm prepared to accept the statement that most domestic pets have emotions as a tentative hypothesis.
Point two: If we assume that they have emotions, then yes, it's possible to be cruel to them. But it's also possible to be kind. As Kiless pointed out, all four of our cats were abandoned - a great example of cruelty. But fortunately they were found, and "adopted", as a result of which they are healthy and certainly appear to be reasonably happy. True, they are all neutered, so they cannot reproduce - it could be said that that was cruel, but that's debatable; neutering cats increases their life expectancy, as it avoids several health problems. Anyone who thinks that cats don't care about their owners is obviously drawing from cats that are completely disimilar to ours.
In short: I don't think that keeping animals that have been bred to be pets, as pets, is cruel. True, from a species perspective, they would probably be better off if released into the wild to let natural selection do its thing. But we don't even do that to our own species - at least, most of us don't.
Point three: Cows, goats, sheep - all have been bred to eat as surely as dogs and cats have been bred to be pets. Granted, their life isn't anything to sing about, but it's not like it would be better if we all became vegetarians. You might feasibly still keep sheep for the wool, but (assuming you're against using cows for leather) you wouldn't keep a lot of cattle around. The species would actually suffer if humans had no particular reason to keep them around. It sucks to be a herbivore, but there were carnivores eating them way before humans started.