The SDK agreement seems (both in letter and intention) to be forbidding apps from downloading code that is run by a custom interpreter. It does not prevent an app from interpreting code that is part of the app itself.
"No interpreted code may be downloaded and used in an Application except for code that is interpreted and run by Apple’s Published APIs and built-in interpreter(s)."
It happens that XSLT is Turing complete, and the browser can certainly download stuff from teh internet. This could mean that merely embedding the browser into your iPhone app effectively turns it into an interpreter for programs downloaded from anywhere. Sure it's sandboxed but technically that shouldn't matter. And I'm sure you could introduce hooks to the browser from native side, to make something interesting out of it.
Regardless, very cool. Saves me writing my own faux-VM for a project I'm working on. I'd intended to compile code to Obj-C and build everything on that, but this will save me a whole lot of time.