Unless Adobe were allowed to break Flash out of the browser and store .swfs locally you would still need to load the app every time from the web. Of course you can already do the same sort of things with JavaScript. If SquirrelFish makes it to the iPhone (it would be silly not to) all JavaScript apps will receive a huge boost in performance.

Plus Flash most likely wouldn't have access to many of the features native iPhone apps do.

Jobs simply hates Flash and Java. I talked to someone who did some advertising work for Apple, and they had some Flash thing that Steve needed to approve, but supposedly he refuses to install Flash on his computer, so they had to do a screencast just for him.