Section 3.3.1 of the iPhone Developer Program License Agreement is the one that truly, deeply bans Flash and other cross-platform compilers, so you must use Apple's development environment for iPhone apps. Well, it might have Apple in antitrust hot water.
The NY Post reports that the Department of Justice and Federal Trade Commission are "locked in negotiations over which of the watchdogs will begin an antitrust inquiry into Apple's new policy of requiring software developers who devise applications for devices such as the iPhone and iPad to use only Apple's programming tools."
To be clear, it's an inquiry they're talking about, focusing on the question of whether it nukes competition in the space by forcing developers to choose Apple's platform over "platform neutral" development for apps that can be run on multiple smartphone OSes. It doesn't mean anything will actually happen at the end of the inquiry.
But really, it'd be silly, to say the least, if Apple actually did face antitrust issues over this. For one, what market, exactly, does Apple
have a monopoly over
overwhelmingly dominate here? Not smartphones. There's lots of competition. Not like the Windows nigh-monopoly of the '90s. There's also plenty of cross-platform applications—Facebook, Evernote, Pandora—as counterpoints.
And while much of Steve Jobs' open letter on Flash is regurgitated Apple talking points (natch), this is true:
We know from painful experience that letting a third party layer of software come between the platform and the developer ultimately results in sub-standard apps and hinders the enhancement and progress of the platform. If developers grow dependent on third party development libraries and tools, they can only take advantage of platform enhancements if and when the third party chooses to adopt the new features. We cannot be at the mercy of a third party deciding if and when they will make our enhancements available to our developers.
Apps, built using native tools, designed from the beginning for a platform, are (almost) always the best.*
Of course, we'll see what happens, if this comes to pass at all. [NY Post]
*Updated the wording here to better reflect what I meant.