One of my co-founders like flex and have programmed some admins in flex, in xml. Myself I don't care much for flash. I've dome some actionscript programming and presentation development but I only do it if I really have to. I much prefer to work with HTML/Javascript. My co-founder would like us to work with flex instead of rails which he dislikes. I have no love for programming in XML, so the middle ground is that we have coded up some small web frameworks in java with seaside-style html generation. It works fairly well.
You can definitely use Rails with Flex. Flex is not a server side language or framework. It can interface with all of them really well through web services. Heck, I'm pretty sure Flex can even inject and call JavaScript functions on your pages. Rails can render things to XML amazingly well, and you can still build an HTML response as well while maintaining the functionality of the Flex application.
Your co-founder is comparing apples to oranges, but whatever works for you all is great. Just don't let the tools limit you.
I've done it, and it does work. Is it a pain? Of course it is. Do you get the Adobe built data components you get with the advanced and charting editions? Nope. Can you build them yourself? Of course, and there's a bunch of open source controls & components you can download too.
You really have to be careful whilst criticizing a company who essentially gave away their protocol and build tools. They could just as easily have marked that IDE and tookit up to $1,000 and we'd still buy it.