Jobs is right. Non-Apple tools making software can (and in the past has) tie Apples hands when it comes to changes/innovations in the OS.
At the same time, there has to be a happy medium: allow the MANY benefits of middleware tools, with checks or agreements in place to reduce the harm. (I dont know how bad Flash may be on iPhone, but Unity is outstanding. It lets a small game developer create idea that would otherwise be impossible. I cant code my own physics engine AND make a game. I dont have the team for that or the budget to pay them, and I cant quit my day job. But I can make a great one with Unity. Many Unity games have been popular on iPhone. If people value indie game creativity, then theres a need for tools like Unity. Or, we can just stick with safe, formula releases from bigger companies that have deeper pockets. Plus simple mini-games, because thats what many one-person companies can practically deliver without Unity. That would be a shame.)
So I hope there CAN be a happy medium; if not for Flash then for other tools. For instance, hypothetically, every app that uses Flash or Unity or whatever could be required to state that in the app description (or even on the app load screen). This would let certain tools succeed or fail in the market based on the quality of their results. And maybe end-users and the tool developers would all have to agree that future incompatibilities are possible, so buy at your own risk. Then let it be the tool developers problem to stay compatible with Apples OS, not the other way around. Again, tools that keep up with Apple would survive in the market, while ones that dont would drive users away.
Any compromise like this is a little messy, and there will always be gray areas, but Id accept a compromise like that before Id accept the loss of all the great touch games that have been (and will be) made with Unity and other tools! And before Id accept Apple having to get Adobes cooperation to update their own OS, because their latest OS idea breaks Flash! Neither extreme is acceptable, so lets hope for a middle path.
(Now, Unity isnt the same thing as Flash: it works WITH Xcode, and requires Xcode. Full disclosure: my upcoming Unity-based game is threatened.)