What is the Euthyphro dilemma, and why does it pose a problem for theists?

The Euthyphro dilemma is an issue from Plato's Euthyphro dialogue. It is a problem concerning whether things are morally obligatory because of their nature, or because God (or gods) will them. Socrates asks "is it (1) pious [holy] because it is loved by the gods, or (2) loved by the gods because it is pious?". In this case we can take 'it' to mean 'moral rules' (do not kill, steal etc.) and 'holy' to be 'morally correct'. The Greeks were polytheistic, but the problem also applies to monotheism.The dilemma occurs when conceived with an omnipotent (all powerful) conception of God. If moral rules are morally correct in and of themselves (option 2) then God cannot have created them, which means God is not all powerful. If the rules are morally correct because God created them, then could God have made murder and theft 'right'? This is intuitively undesirable.