The problem isn't editorial control of their store, it's that their store is the only means to distribute a public app. If they allowed you distribute an app on your own (like you do for desktop apps) it wouldn't be a big deal when an app isn't accepted.

You can distribute apps on your own; it's just that the process to do it is cumbersome. I can make excuses for why that's a reasonable restriction (Apple has some reasonable restrictions for iPhone apps that would be hard to enforce in the presence of popular ad hoc app distribution systems), but they won't be convincing to you.

Look, I probably agree that in a perfect world, stupid apps like this one would still be listed for download somewhere. So I'm not going to argue that the circumstances here are a win for the app store. I'm just trying to recognize that Apple has an extremely ambitious and interesting strategy for iPhone developers, which complicates things in weird ways. I'd rather have the Apple-controlled app store than what OS X has, and I'd 1000000% rather have it than what the RAZR has.

A distinguishing fact about markets is that they let consumers decide what is useful and what is not.

What's a precedent for an online market for downloadable apps, where that market is the primary venue for the platform, where users have enough control over the listings to prevent them from getting swamped with crap (such as individually packaged apps for each Project Gutenberg text), but not enough control to game the system?

There are certainly UI issues. However, I do believe there are precedents for open marketplaces that are not overrun by crap. The digital music businessed of iTunes and Amazon do a good job of being open to any vendor while giving the most popular artists the most exposure to casual browsers.