There are many different problems with interactions; or, rather, many manifestations of the same problem.
For example, interactions are always non-linear in the equations of motion, e.g.,
$$
(\partial^2+m^2)\phi=\lambda\phi^3
$$
or similar equations for QED. As the operators are distributions, their products are ill-defined, and there is no rigorous method to make sense out of $\phi^3$. It is just a meaningless expression (up to physicists standards, one could at this point mumble something about normal ordering, but this doesn't really achieve much).
Only in the case $\lambda=0$ does the equation above have a meaningful interpretation: it becomes a well-defined differential equation for a distribution, which can be made very rigorous within the context of distribution theory. For general $\lambda$, the equation is just meaningless.
As free fields are well-defined and understood, one may attempt to fix the problem above by switching into the interaction picture,
$$
\phi=U\Phi U^\dagger
$$
where $\Phi$ is a free field, which is a well-defined object. Here Haag's theorem enters the picture and tells us that $U$ doesn't exist. Yet we physicist play to pretend that it does exist, and write
$$
U=\mathrm {Te}^{iS_\mathrm{int}}
$$
only to realise, later on, that $S_\mathrm{int}$ is plagued by divergences (for example, in the form of divergent counter-terms in the interaction Lagrangian). This is the price we must pay to have a finite $S$ matrix: as $U$ cannot possibly exist, we must encounter divergences in its very definition, or otherwise the theory would be utterly inconsistent. This is the point of view held by some people: QFT evades Haag's theorem through renormalisation, and only because the latter is an intrinsically ill-defined operation.
One may even try to give up on trying to formulate the theory from first principles, and just content ourselves by defining the theory by its Feynman rules. Barring aside the fact that the perturbative series is asymptotic, Feynman rules are meaningless too from a rigorous point of view. For one thing, they include propagators and products thereof; and these objects are distributions as well, so their product is ill-defined. This fact of course manifests itself once again through divergences: Feynman diagrams include all sorts of divergences, which cannot be accommodated within a mathematically rigorous theory. This approach is typically hopeless too.
The only way to really fix these problems is to work on a lattice. This is because when you go to a discrete space-time, distributions lose their singular nature, and you can use standard functions (i.e., the fields become operator-valued functions). For example, the Dirac delta in the r.h.s. of the canonical commutation relations becomes a Kronecker delta, so the l.h.s. loses its status of distribution. On more practical terms, when you work on a lattice everything is convergent, and so the theory makes sense, at least from a perturbative point of view. More fundamentally, when you work on a lattice, the degrees of freedom become finite, and so Haag's theorem doesn't apply anymore.