I recall a biologist explaining the difference between the evolution of feathers and hair this way:

You have a planar surface interface between the animal and the environment. The plane can change in 2 ways. It can locally bend up or or it can locally bend down. From that basic starting point, skin coverings evolved 2 ways. If the skin bends up, you have feathers or scales. If it bends down, you have hair.

[link|http://www-hsc.usc.edu/~cmchuong/2003JEZAdapt.pdf|This] 15 page .pdf discusses these issues in more detail with lots of pretty pictures.

Cheers,
Scott.