Flash used to be an animation tool, but it is not now. The Flash 9 player has a lot of horsepower hidden inside of it. Having the Flash 9 player would allow developers an avenue to build all sorts of web applications for the iPhone. Flash player 9 is used to deliver Flex applications so almost anything is possible once the Flash player is made available.
It is more than just showing a video in flash. I could personaly write a chat app, or a video conferencing app, or a game, or almost anything I wanted in Flash. I could also use the Flash player to download files to the iPhone.
Since Apple wants to keep the iPhone closed (jailbreak and such are not sanctioned Apple programs), they have to overcome the flexibility Flash gives developers over the iPhone.
I will agree with the previous poster, getting flash to work on the iphone would not be that easy, in its current interation its quite mouse centric, I suppose with a lot of work you could build a usuable interface but what would be the point But really I think the issue is licensing, have you actually read the adobe flash licensing agreement. Only flashlite can be put on a mobile device, and thats more geared towards win mobile. The embedded os in the iphone is closer in kin to full osx than an embedded os.
second point, I would rather apple concentrate on allowing 3rd party apps, I think they have some technical sticking points and may just be waiting for leapord.
Third point, google is looking at porting gears to to webkit, its not a great leap to imagine that later versions of safari for the iphone will incorporate the latest webkit, which means gears support. Persistant data and code storage.
Now let me poise an open question, do you concentrate on allowing objective c development on the phone or do you find something analogous to visual basic 1, (vb 1 and vb 2 really didn't do well, vb 3 started the revolution) where any developer can pick it up an quickly turn out an app.
Objective C is not the easiest language to learn and without java support the only next alternative is web 2.0 javascript and ajax.
where I think apple really screwed up, is edge support the Iphone cries out for 3g. And will bet we will see that in 2 or 3 more interations of the product. So given apple's products cycles maybe a year. Most "power users" for want of a better term replace cell phones every 12 - 14 months, and since att is not subsidizing the Iphone the upgrade path may not be as bad as cell phone plan upgrades are now.