But that's kind of beside the point. I'm guessing that Apple's real objection to Flash on the iPhone is that they don't want Adobe to be in charge of something that important. Apple likes to be in control of their own destiny, and they're one of the few companies with the clout to get away with something like that.
iPhone is a whole new platform, in a sense. If Apple keeps Flash off of it for long enough, the developer community might make do with alternatives -- javascript, quicktime, etc -- so that Adobe's stranglehold on web media doesn't carry over to the newly burgeoning iPhone world.
I'm guessing Adobe is all too aware of this possibility, which is why they're lobbying so hard to get in there and assert their dominance.
I think it's something similar, but slightly different: that Apple doesn't want any code running on your iPhone that didn't go through the App Store.
You might think "how much of an app will that be? it will be a flood of crapware". But then take a look at what people are willing to pay Apple $5 for.