Developers will make apps where it is fun to make apps. I haven't had any horror stories with the app store, so it's still just more fun to make iPhone software than anything else.
Handing my phone to my friends and telling them I made what they are looking at has been really fun. Also, telling anyone with an iPhone how they can just search the app store and find my little app is way fun. My Mom installed it even!
The facts disagree.
The App Store model is unusual and it is not perfect. Few developers have any experience with Cocoa or Objective-C. Developers must use a Mac. iPhone software only runs on the iPhone and is not easily ported to other platforms.
Despite all of that, Apple has attracted developers to the App Store and the iPhone in numbers nobody would have predicted. Meanwhile, all other mobile platforms are rushing to duplicate the model.
It would seem Apple knows exactly what developers want.
Aye, money outweighs freedom even today.