> If you're talking about free Flash games the obvious competition would be free iPhone games which Apple makes no money off of. If you're talking about ad-supported Flash games then the competition would be ad-supported iPhone games, which Apple makes no money off of.

Apple may not get any money on freebies, but those freebies are still distributed through the iTunes Store, you still need to pay the $99 entrance fee, and you still have to own a Mac to develop iPhone software. That's control they are going to great lengths to keep.