The way to tell is that you can kick the hardware.

That works perfectly fine with old boxed software too. And by jove, have I kicked a lot of software.

Hmm, I've been "kicking" software for years:

    /etc/init.d/apache2 restart

Yes... apps are just a subset of software. Apple has used the term Applications since the early days of the Mac. The OS X dictionary defines them this way:

"a program or piece of software designed and written to fulfill a particular purpose of the user"

There was a time when desktop applications were small too. The first version of Photoshop I ever saw, when compressed, fit on an 800K floppy. Apple released the source to MacPaint 1.3, an early Mac application. It's only 67.8K

http://www.computerhistory.org/highlights/macpaint/

iOS apps may have simple interfaces, but the hardware is powerful enough to do many things with. I think VLC is a good example of a non-trivial app. It's much bigger than MacPaint!

http://m.macupdate.com/info.php/id/35314/vlc-media-player

I wonder how different Apple's success would have been had they called it the Software Store rather than the App Store.

If it was in their corporate DNA to name something like the App Store the "Software Store," they would have died out in the 90's making a Windows clone.

"App" is perfectly natural for Apple, given that OS X applications (and NeXT apps before) have the extension .app

Apps are not software ---for certain constrained definitions of "apps" and "software"