The Iranian Image

Was most likely the reason behind the kidnappings and subsequent release of the British sailors and marines, not to mention the photo-ops and parades.
If you didn't gather that already.

The SF Chronicle words it nicely:

Not only did Iran demonstrate a willingness to forcibly confront other powers, it helped erode Blair's already crumbling public support, sent a shock through the oil markets and gave Ahmadinejad a chance to look like a forgiving friend rather than the zealot he is often perceived to be.

At some point, the Iranians apparently decided they had gotten as much out of the crisis as they were going to get.

Joseph Nye would call this a manipulation of their "soft power," and although I'd like to think everybody knows it was a ridiculous stunt on the part of Iran, but within the context of Iraq, Iran scored; Britain -not quite. Nor the West for that matter.

Iran almost had nothing to lose. Public opinion was not in their favor, yet with the war in Iraq increasingly opposed worldwide, Iran's actions made Iraq look that much worse, and their publicized treatment of the British and eventual release as a gesture of "goodwill," could only reflect positively on them.

But more importantly, it put pressure on Britain and the U.S., and now we are more consciously aware of Iran when dealing with Iraq. Depending on how this plays out in international public opinion, support for necessary action against Iran may have been jeopardized, thus giving Iran more freedom to develop nuclear weapons. Let's hope the world sees this as what it is, not what Iran wants it to look like.