So this is a bad decision because one technology you like is already entrenched so there's no point fighting it, and also a bad decision because another technology you don't like is so entrenched that it'll be around for years because Google won't fight it (in one very particular way, which happens to benefit Apple most).

Many of your arguments are valid against WebM (basically lack of maturity, support) but the exact same arguments can be made about HTML5 video with any codec (not supported by the majority of bowsers, it's not a standard yet, where is the DRM, hardware acceleration is patchy, captioning support is still sketchy, easy switching between streams etc.)

The set of those who oppose Flash as a closed web technology yet don't believe in royalty-free web standards is much larger than I thought it would be. But it seems to be mostly the cultier end of the Mac fanbase. It's a bit of a shame that they can't just come out and say "this affects me because Apple supports neither the current defacto standard H.264 via Flash, nor the coming de jure standard WebM via HTML5 on my portable iOS devices". (Note that the more normal Apple users were already annoyed, at Apple, for the first half of that lack of support on their iPads.)

Flash is in no-way teetering on the brink, and this decision by Google has minimal impact compared with the fact that 99% of web video is served via Flash. The only thing likely to make a dent in that number is changes at Youtube. So if you really hate Flash that much, I'd stay on their good side.