Re: Pierstorff's explanation, I haven't heard the biological weapons explanation before. As the primary motivation for Hitler's restraint, I don't think it's correct. From my understanding, bio weapons were rather primitive on all sides and the Japanese were actually the most advanced in this regard, not the Allies.
[EDIT: I'm not sure where I first heard all of this, but here's a confirming source that I do trust--Derek Lowe of In the Pipeline ]
I'm really surprised no one has mentioned tabun yet. This nerve agent was the first ever produced, the forerunner of sarin and VX. Hitler made a lot of it, and the Allies weren't even aware of nerve gases until they captured some tabun from the Germans fairly late in the war. The Germans could have wreaked real havoc if they had used it at a critical juncture. With an effective delivery system, they might have been able to turn back Operation Overlord (D-Day), prolonging the war for god knows how long. (Nerve gas tends to be much more effective than other gases, especially if the enemy doesn't know what the hell it is.)
Here's the punch line: the reason why Hitler didn't use any gas (tabun included) was because his advisers thought the Allies had tabun as well. Apparently all of the prerequisite chemical work had been done by American scientists and were published in ordinary academic journals years before (the discovery of tabun was a natural consequence of pesticide R&D.) They just assumed that the Allied military had taken note of the research and prevented further publication in order to use it as a secret weapon if Germany used gas first. In reality, Allied military scientists had completely overlooked it.
So, fearing the Allies' hefty air power could saturate German cities with tabun at a moment's notice, Hitler refrained from using any gas. I think this is a fascinating example of MAD functioning many years before the phrase entered common usage re: nuclear war... with the added twist that the threat from the other side was entirely imaginary.
It also seems to be an unusual example of Hitler showing fear, sensibility, and/or restraint.