The argument is that users won't want to install a separate app for all the various things they do on their phones (especially not the things that they don't do often) and would perhaps favor a mobile website instead.
The argument that users don't/won't install lots of apps on their phones is simply wishful thinking. The reality is exactly the opposite of that. Users that have traditionally struggled with various features of the internet in browsers are able to do what they've always wanted in apps with far more ease. Even despite the a lot of the Mozilla community being dead-set against using a native UI, they've pushed on and will eat more market share as a result due to the instantly recognisable interact they'll get as they launch the app rather than waiting for the interface to load on XUL/HTML/JS/XML that just aren't as quick.
You also have to take into account that with a website, you have no one to run to. Users generally feel ignored, where as with the social aspect of any app market users feel like they're patt of a community.
Anything that currently states users prefer websites over apps is incredibly ignorant of the facts. A prime example is with Twitter. Tweetdeck on desktop and mobile shows far more usage than that of the website. As does Ubersocial and in fact their own apps. There's a firm desire on the parts of many to see people use the web over apps but those are merely desires of a small percentage.
with flash's workflow you: 1) create a flash file with the mature tools, test, release 2) create an animated gif as fallback
yes its buggy, and the video is slower than decent native support, but it works the same across all browsers (90%)
Advertisements should be text or images. Even animated GIFs are pushing it.