I'm always tired of the "it's not censorship if it's not the government" argument, because that's not any sensible definition of the word "censorship". I would argue that Apple does censor what is available at the App Store, just as Wal-Mart and the music labels censor the music that's available for sale there by having to sell the "clean" version, or that a newspaper censors itself or indeed its letters to the editor if it refuses to publish things that are uncomplimentary to its business partners or the government. Likewise, the "standards and practices" division at a TV network is universally known as "the censors" among writers and producers, probably because they're the ones that tell you what parts of the script you can't air.
All of this is censorship. What it isn't is a violation of anyone's legal rights to freedom of expression.
The app store is like a giant department store. If I make a widget I can't walk in to wal-mart and demand that they put it on the shelves. Even if the pornulator3000(tm) would fly off the shelves and make both wal-mart and I a ton of cash they are still under no obligation to stock my product if they think it will hurt their reputation or standing in the community (e.g. turn them into "the store where you go to get that wink-wink nudge-nudge massage device...")
If Apple had a monopoly position they would be the _only_ store in town. That is clearly not the case. They may be the hottest, most-hyped store in town but consumers clearly have other choices.