Flash Sucks (TM)
There is a reason, a real valid reason, why Flash isn't supported by iPhone. Flash sucks. It sucks big time. It sucks in ways that offend browser developers, operating systems designers, web site developers, and users of their products. Flash is a steaming pile of poo. Flash has the same problem that all the various incarnations of Symabian have, the same problem that Palm OS has, and will have even worse when it's layered on top of Linux.
Flash is Adobe's clandestine attempt to provide a miniature operating system inside a web browser, and they botched it. They didn't give the task to operating system developers, and they didn't even acknowledge to themselves, at first, what they were really doing quite possibly because they were unaware until it was pointed out by others. Consequently, a whole bunch of wheels, round in the OS universe, have some number of corners in the Flash universe.
For the consumer, the result is somewhat flashy, somewhat cool toys that run in web browsers, but do so quite poorly. Flash applications and web sites typically don't look all that sexy, except by comparison to HTML, which isn't a very high bar. Flash issues contribute to performance and stability problems. Flash makes decent web browsers look bad.
Flash Sucks. Few People Notice. Details at 11.
These problems manifest on desktop and laptop systems (of all kinds), but there is so much extra horsepower these days that people don't much notice how bad Flash really is. On a device like a phone, however, poor Flash performance could lead to an overall poor phone experience. Apple is forgoing Flash not merely to ensure a good experience for iPhone users, although that's certainly a primary motivation. Apple has another plan, and unfortunately for my little empire, it's not Silverlight.
Steve is going to try something bold. He wants the web to suck less. He wants the web to be as cool as OS X.
Apple's Secret Plan to Fix The Web, Part II
Apple is going to try to boot Flash right off the web.
Apple probably won't move on this front until next year at WWDC, at the earliest. The timing will depend on how rapidly the Safari market share of web browsers grows, but you should be able to see this coming. Safari for Windows has some of the parts already, and QuickTime for Windows has some of the other parts. The infrastructure parts of it will very likely be an open source project, already ported to Windows before it's announced.
When they have all their ducks in a row, Apple will introduce a new web plugin for Safari, possibly FireFox, and maybe even Internet Explorer which puts a nice programming layer on top of Apple's core web technologies, exposing them directly to web designers. The foundation technologies of Safari on Windows will be tapped directly. You'll likely see an elegant Apple designed API for web development exposing parts of Core Foundation, Quartz Extreme, QuickTime and, importantly, Core Animation. It will make Flash look and feel like the toy that it is, and Flash will be tossed on the scrap heap of forgotten technologies.
It's another small part of Apple's Secret Plan. If Apple's able to swing this, and it may take years, people will call it Web 3.0. It will really be Web X.