What does the inspector mean by "Hot and Neutral are not separated"?
I'm guessing from the image that this is a sub-panel, in which case the inspector is correct.  The National Electrical Code (NEC) says:

National Electrical Code 2008
250.24 Grounding Service-Supplied Alternating-Current Systems.
(A) System Grounding Connections.
(5) Load-Side Grounding Connections. A grounded conductor shall not be connected to normally non–currentcarrying metal parts of
equipment, to equipment grounding conductor(s), or be reconnected to
ground on the load side of the service disconnecting means except as
otherwise permitted in this article.

Which means the only place the &quot;neutral&quot; (grounded conductor) is bonded, is in the main service panel.  If the grounded (neutral) and equipment grounding conductors (EGC) are bonded anywhere else, you can end up with neutral currents on the EGC and metal parts of equipment which is a violation of 250.6(A).

250.6 Objectionable Current.
(A) Arrangement to Prevent Objectionable Current. The grounding of electrical systems, circuit conductors, surge arresters,
surge-protective devices, and conductive normally non–current-carrying
metal parts of equipment shall be installed and arranged in a manner
that will prevent objectionable current.


A second look
After taking another look at this, he could mean that the white insulated wires are not marked appropriately.  When you use a wire with white (gray, or with three continuous white stripes) insulation as an ungrounded (hot) conductor, you have to mark the wire in some way to indicate that it is not used as a grounded (neutral) conductor.

200.7 Use of Insulation of a White or Gray Color or with Three Continuous White Stripes.
(C) Circuits of 50 Volts or More. The use of insulation that is white or gray or that has three continuous white stripes for other
than a grounded conductor for circuits of 50 volts or more shall be
permitted only as in (1) through (3).
(1) If part of a cable assembly and where the insulation is
permanently reidentified to indicate its use as an ungrounded
conductor, by painting or other effective means at its termination,
and at each location where the conductor is visible and accessible.
Identification shall encircle the insulation and shall be a color
other than white, gray, or green.

Since the white wires connected to the breakers are not marked, it looks (to the untrained eye) as if the grounded (neutral) conductors are connected to the hot bus. The most common way to mark the wires, is to wrap a bit of black electrical tape around a small section of the wire.