I'll bite. I like disagreeing with you! I think I've been rude to you before, but I like a lot of your posts, and you definitely don't deserve a drive-by down mod.
Your solution is not viable because the problem is not an interface problem. The problem is that Flash does not actually make the iPhone, iPod, or iPad a better product in any way that matters to Apple.
Some potential customers (which Apple surely cares about) may demand it, but they also demand ponies, etc. Whether they would actually buy the product if it had Flash or would like it if they had it is something we can only guess at, but if you had to guess if users would really like poorer performance, poorer battery life, more advertisements, games which run but don't fit on the screen or work well with touch interfaces, choppy video with non-standard controls--well, if that's what Flash support means in practice, it's quite possible that those users really don't know what they want.
If this all sounds very paternal and "Steve (and whoever else at Apple) knows best.", well...it is. Good design often is pretty dictatorial. It's not the only way to design a good product, but it has a pretty good track record, and not just for Apple. They've certainly had a pretty good run in declining to support Flash. Is that going to come to a grinding halt over Farmville and Punch The Monkey? Maybe. Probably not.
Apple generally doesn't want to soak up any of the credit or blame for technology that they don't have any control and hardly any influence over. If Flash on the iPhone/iPad sucked, it would mean something about the iPhone/iPad sucks, and Apple wouldn't be able to do anything about it.
Think about that. Would you want to release a product that not only incorporated a flaw (even potential one) that you couldn't fix, but which you depended on to meet the market's bullet-point test and which you couldn't remove on pain of user revolt? Dreadful scenario. Why not "just" try not to depend on things you can't fix?
The Apple story in the past decade has been shrewd application of this rule to very great effect in every case that I can think of, from touchpads to retail. It isn't an ignorance of real world circumstances (like Flash's installed base), it's a refusal to depend on them. Where they can't roll their own or do without, they tend to bring a ton of leverage to the table and leave with a bag of concessions.
You may have noticed that Apple has a strong brand. They got that way by trying hard to not release crap. Contrast (say) Microsoft which has a wildly uneven product line ranging from really great to utter trash. Contrast the Android platform, "iPhone Killer"s all, and all striving to escape the pit of their own shared mediocrity.
So, they don't want to release crap, and they don't want to depend on anybody else? Now the question is: Do they really have to depend on Flash to make their product great?
The thing is, most people outside of Adobe that "want Flash" don't actually want Flash. They want the things that they currently get through Flash, like games and video and rich interfaces. Now that is something that Apple can work on. And they do. And sites that would otherwise depend on Flash do. And native application developers do. And the result in most cases is a better overall experience for their users for each of those things. And there is more of that every day.
So even though they're losing a bit to the non-fungible nature of the content (i.e. you can get games but not Farmville...yet; you can get video but not Hulu...yet), what they are gaining in the end is actually a higher-quality result overall. Isn't that what it's all really about in the first place?