Guess what. Lots of people write free software in their spare time (where do you think many of the OSX underpinnings and tools came from??). Apple is afraid of this b/c as soon as an SDK is released there will be free versions of all the apps they are hoping to charge money for. I bet they end up crippling the SDK or make it so that you *have* to buy your apps through ITMS so that they can continue to get a cut. Problem is that if they do that, it will spell the end of their iphone/itouch platform.
Paranoid much? You should ammend your statement to "Lots [sic] of people write
poor quality software in their spare time." There are some good counterexamples out there, but many if not most open source projects are undocumented messes with lousy user interfaces and/or designs. Many have been abandoned and are, for all intents and purposes, dead since the reimplementation cost is frequently lower than the cost of learning how to use it and updating it.
Apple is not "afraid" of anything: Apple is a company who's top priority is the profit it makes (legally obligated, actually). If it believes the best way to do this is through open source, they have traditionally been more than willing to leverage it or encourage its use.
Examples? On MacOS X X11 is bundled, free development tools are provided, and new tools that encourage third-party development come out all of the time (e.g., CoreData, CoreAnimation, etc.). They include Python and Ruby with bindings, and have done nothing to stop projects such as Fink and Darwin ports.
They haven't seemed to care if people try and compete against Pages, Numbers, Bento, etc. I don't see why things would be different for this case.
There will be an SDK for the iPod Touch/iPhone and I have seen no evidence to suggest that it will be crippled beyond posts such as yours. Its an interesting thought--that may even prove to be accurate, though I highly doubt it--but there is zero evidence of it at this time and several things that would lead me to think that it will not be crippled at all vs. what Apple does with their own applications.