I predict that the falsh problem will be solved in 2008 not by releasing a Falsh player, but rather an application that can open up flash files, find the source video and play that back through the standard video player application on the touch. This will be much easier than it sounds, since Adobe is dropping FLV for h264 anyways, which the touch can already play, so it's just a matter of dissecting the flash file, finding the address of the video file and shooting it over to the video player. A codec upgrade to let the flash video player decode FLV is that final step.
This will take care of the primary use for flash nowadays, video, and be a hell of a lot easier than writing a full flash client. Without full flash support you still get the advantage of lower battery consumption (not loading a ton of flash banners and junk) but could still use it for flash video sites like the BBC. Either Apple will do this, with Adobes help, or some clever programmer will.