The iPhone will never be awesome until anyone can sell an app without approval.
There's a compelling point here: Mr Jobs knows all about this issue (he and Woz created the PC category... and today a "PC" means a non-Apple computer. That's a comparable ouch to getting sacked from your own company.) It superficially looks like he is repeating the same mistake, as when the IBM-PC beat the Apple. But I seriously doubt that, and I wonder, "what's his strategy this time around?"
Also there are many competitors and there were before they launched. I owned for 2 years before it exists. Somehow Apple managed to rewrite history in the minds of a lot of people.
The iPhone has a full web browser, though, which is a much more likely point of entry for malicious code.
To your first point, though: I thought you were talking about listing arbitrary apps in the central App Store without vetting them. People trust things that, like you said, come from reputable sites. The App Store is seen in its entirety as a "reputable site," no matter which publisher actually wrote the app. I'm all for allowing you to just surf to an .ipa file and download/install it, but don't allow people to list a trojan-horse "Apple Remote" right beside the actual "Remote" without creating some form of community filtering or known-developer verification.
There used to be a site that you browse to in mobile Safari, and it would jailbreak the phone. A potential vulnerability in the app itself is probably what he meant.