Most analysis when questioning games, this one included, point to the app store and claim it is due to the existence of the App Store and Apple's desire to control game content on their devices.
But they seem almost always to gloss over the fact that the controls would be a huge stumbling block. First, most Flash games use the keyboard for the user input. How would this work on something like a Nexus One? If the controls for the games use the arrow keys to navigate and the virtual keyboard has no arrow keys, how does the user control the game?
Likewise, many follow the mouse movement. However, on touch screen devices, there is no graceful way to track the mouse movement because there is no mouse. Swipes are generally used to indicate scrolling and touches selection. (like a mouse click)
So even if they allowed Flash on these devices, many users would be screaming about how Game X doesn't work and Game Y doesn't work only because the interface doesn't translate gracefully.
I am just constantly surprised that I haven't read any blog posts that address this (seemingly) obvious issue.