I think you've misunderstood what's happening (though it's also possible I've misunderstood your post, in which case sorry).
Unless it's HTML/JS/CSS, there is no way of embedding an app, Flash based or otherwise, in a web page on the iPhone. iPhone Apps are standalone and interact very minimally with each other. Safari on iOS certainly has no way of accomodating something akin to a Flash plugin.
What Apple have OK-ed is using tools other that XCode to produce standalone apps and one of the tools this now allows is Adobe's Flash to iPhone app builder which, very roughly speaking, takes the source of a Flash application and creates an iPhone app with the same functionality.
But the apps it produces are not Flash, they're standalone native iPhone apps, they can't download or run Flash from the web, they sit outside the browser, they still have to go through the app store and are still subject to Apple's rules and restrictions.
In terms of restricting things to the App Store - Apple already allow a mechanism for going to the web and running apps that don't go through the App Store. It's called web standards - HTML/CSS/JS/H264 and so on - indeed for a while it was the only mechanism they supported.
The App Store contributes 1% of Apple's profits (high volume but the margin is pretty low as you've got to host, review and distribute every app, regardless of cost or sales). I honestly think this is about the experience rather than the money.