Steve Jobs: "Our innovative approach, using Web 2.0-based standards, lets developers create amazing new applications while keeping the iPhone secure and reliable." Yeah, they're going to have to create them since the iPhone's current support of "Web 2.0" standards, in a word, blows.
No Java, Flash, full AJAX (the cinchpin of innumerable Web 2.0 apps) or streaming support severely limits the Web 2.0 (or even just regular Web) sphere the iPhone can work in. Sascha Segan over at Gearlog put it through a gauntlet of popular Web 2.0 apps, and needless to say, the browsing experience was far from ideal, EDGE pokiness (or not) aside.
Wanna edit docs using iZoHo or Google Docs or Spreadsheet? Don't plan on it—the keyboard doesn't spring up. Fill in the glaring IM client omission with Meebo? Shnope. It'll load and you can look at it, but that's about it. The list goes on.
So what are developers doing? They're not so much developing for the iPhone as they are developing around the iPhone. For example, Glide and RemoTV have both said they're working on iPhone-specific versions of the apps, and they're undoubtedly not the only ones, given the size and relative affluence of the market chunk they'd be missing out on.
As it turns out, there's a big difference between having to figure out innovative ways to shoehorn in current standards and apps and actually innovating new ones.
iPhone: Poor Compatibility with Web Apps [Gearlog]