Once the SDK is out, I don't see Apple having any approval rights over the types of software developed for the iPhone/Touch platform, any more than they have these rights for the Mac. How could they? The entire difference should be whether the software is developed properly or as a hack. Once the APIs are are out in the open, and developers can program without hacking, I think the hack application market will dry up, as it will no longer have a purpose.
Steve Jobs already confirmed that apps developed with the SDK will need to be digitally signed before being distributed - so, approved by Apple. And where are people going to download these approved apps from, and by what means will they install them? I'm guessing iTunes, but really I have no idea, do you?