Earlier quoted context omitted.
This change doesn't just cover Flash though; it also hits all of the Mono cross-compilers (and Scheme, and everything else that happens to cross-compile). I can't see any way that this turns out as remotely positive for developers.
Apple has consistently demonstrated that they don't care about what developers want. They seem to believe, and have so far been shown to be correct that if they can get the consumers, developers will follow. The only way I can see this changing is if a killer app that consumers want becomes available on another platform and not iPhone OS due to Apple's restrictions.
Developers will make apps where it is fun to make apps. I haven't had any horror stories with the app store, so it's still just more fun to make iPhone software than anything else.