Wow, so many of you still don't get it. You hate Flash, fine. This move screws over many more devs than just Adobe. Unity, Torque, Shiva, windows iPhone developers. I was starting in Unity but now I have to wait and find out if it's still a viable platform for development. No official answer from the Devs of unity yet. This move from Apple comes right after Unity announced iPad support.
God, I hope it doesn't wreck the middleware market.
Um, no YOU don't get it. Apple's priority isn't keeping the developers happy. Apple's priority is keeping the people who buy its products happy. Their bet, and so far they have been right on this one, is that users are happy when the iPhone provides a solid, easy to use, ease to understand experience. Further they bet that when you get a huge amount of users really excited about your product, people will develop for it in droves.
On all accounts they were right.
Now, Apple is going to do things to help developers, they have made tools available for free, are adding new API's that help increase application capabilities AND they are doing it in a way that doesn't break the great iPhone user experience.
What Apple ISN'T going to do is bend over backwards for developers who want to do things that run orthogonal or contrary too Apple's priorities (i.e. the end users). Apple isn't going to lose any sleep over Flash devs who want to cash in on the iPhone experience while still being devoted to Flash deciding to drop their iPhone development, especially when in order for Apple to continue to support those capabilities it might need to compromise the experience on its end.
Flash is outside of Apple's control, which means that if Flash doesn't want to make an improvment, Apple can't do anything about it. If Flash is buggy, Apple can't do anything about it. We've all had to work on projects and been stuck with a crappy partner/team member. Apple has decided based on its experiences that Adobe is a crapy partner as of late, so they are saying, forget it.
Apple doesn't want to need flash, and fortunately for Apple results have shown that it doesn't NEED flash. The iPhone has been a smash hit despite not having Flash. Website after website are abandoning or deprecating Flash in favor of technologies that the iPhone DOES support not just because the iPhone supports them, but with the IE announcement of HTML5 support, so does everyone else.
So rather than shackling themselves to a proprietary format controlled by a single company, Apple is championing an open format controlled by the W3C which all companies can have input on.
Flash is losing this battle and thats a good thing for the end user in the long run AND it shows that Apple picked the right pony in this race.