That was true given early revisions of the agreement. If you revisit the language you'll find that the phrase "download and run" has been replaced with "download or run."

That said, there was talk about moving Wax to llvm-lua such that the resulting application would be compiled machine code. The new clause precludes this option entirely.

The only uncertainty left, now, centers around enforcement. There are a number of PhoneGap and Wax powered apps already in the store, and PhoneGap was even blessed as an approved framework. Only time will tell if that blessing stands.

I'll take a guess - Lua isn't there to abstract the iPhone. It's just there to make development faster. Apple won't clamp down on better apps, they will only target cross-platform abstractions. But it's still a bit worry.