It was last updated Oct 7; no idea how long before that it existed. They've had plenty of time to notice this. With that in mind, I can't think of it as anything other than an endorsement.
Also, not saying you're making this up, but do you have a citation for the tax breaks over benefits thing? I'd never heard anything about Apple's Q?LGBT[A-Z]* policy, and I'm curious.
I have a policy of doing up my fly. If I walk around all day with it down, I am not endorsing nudity. I may not have noticed. Once someone brings it to my attention, if I leave it down, we have an interesting question. Until then, it's an oversight.
Endorsing it would be a statement from Apple suggesting it is acceptable material. Until then... We have wheels turning. I am in favour of bringing it to light and reminding Apple about their own policies. I am in favour of criticizing the App Store process as bing error-prone. But I wouldn't say they endorse this app, I would say they endorse an imperfect approval system that relies on individual judgment calls that must inevitably cause a small number of apps in compliance with the terms and conditions to be denied access to the store and a small number of apps that are in violation of the terms and conditions to be allowed into the store until someone points out the error.
I don't have the exact link, it may have been this incident from 1993:
http://articles.latimes.com/1993-12-01/business/fi-62768_1_w...
My recollection is that Apple was given the "compromise" option of denying same-sex benefits to employees in the jurisdiction in question but turned that down and decided to locate elsewhere.
Update: Another link http://www.qrd.org/qrd/usa/texas/1993/Texas.County.denies.Ap...
Just because I don't think it's an endorsement and because I think it's an oversight by a reviewer and not Apple policy doesn't mean I think it's acceptable. I'm appalled, especially because of my views on Apple's approach to diversity.
I know basically nothing about who actually looks at the apps that get submitted. Nor do I know anything about what apps typically get rejected. I've never worked with the App Store personally, as a developer or a consumer. But I understand developers should expect a time period of anywhere between an hour and two weeks before getting approval, during which presumably a human looks at it, right?
I just can't imagine any adult of sound mind and typical socialization (and presumably having gone through training that explained what Apple's internal policy is toward app approvals) wouldn't realize that that app is offensive. Thus, the only explanations I can come up with are either a) whoever approved it genuinely didn't notice its content (possible but highly unprofessional and careless, to a degree I normally wouldn't expect from a company with Apple's reputation) or b) Apple's famously stringent approval policy contains nothing that forbids this content.
Hell, it's possible I'm expecting more stringency from them than actually exists. Most of my knowledge of the App Store comes from the tech press. But there's no getting around the fact that a human looked at this and approved it. We are thus in the second scenario you mentioned: someone has seen your pants and very likely your unbuttoned fly, and the situation has not been rectified. Consequently, I feel I do have standing to hold Apple accountable for this, and as you say, more so because of their apparent position in the past in support of their LGBT employees.
More importantly, Apple extracts 30% of the sales of this garbage. It appears somewhere on an Apple web site. Even if Apple had a policy of allowing any app to appear on their store I would still hold them accountable for reselling this kind of thing and having it appear under their name on the App Store.
Their guidelines are not on a public server, however Gruber quoted the guidelines last month:
http://daringfireball.net/2010/09/app_store_guidelines
We will reject Apps for any content or behavior that we believe is over the line. What line, you ask? Well, as a Supreme Court Justice once said, “I’ll know it when I see it”. And we think that you will also know it when you cross it.
And:
Any app that is defamatory, offensive, mean-spirited, or likely to place the targeted individual or group in harms way will be rejected.
And if neither of those apply:
This is a living document, and new apps presenting new questions may result in new rules at any time. Perhaps your app will trigger this.
I think we're in violent agreement that this app has to go, and go swiftly.