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I'm pretty sure the restriction to objective-c was due to performance concerns.

I believe it was also due to wanting developers to make use of the latest OS frameworks. Third party development frameworks often lagged behind in features (i.e, doesn't support new auto rotation features, doesn't support new camera features, and so on).

The policy was changed and ultimately never enforced, but I always viewed it as a way to ensure that developers kept up-to-date.

It think the timing (days before the Adobe Flash CS5 launch, the first release that included iPhone application support, IIRC) and the eventual reversal makes it clear that this was about making life difficult for Adobe and Flash and not much else.

Good point.

And after having a client deliver us an Adobe Air app to "fix", I am so glad it didn't become a popular way to develop iOS apps.

why? if the app performes badly they can just reject it, regardless of the programming language

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