Ouch - from the grand poobah, Steve Jobs: "version of Flash formatted to personal computers is too slow on the iPhone"
Adobe's response notes the difference between "Flash lite" (for mobile) and "Flash" (the desktop version Jobs alluded to in his comments).
From a technology perspective, this hilights a subtlety Jobs implies that most (including Adobe's Ryan Stewart) either missed or mis-directed in their responses: Jobs doesn't want the half-assed version of the Web that most users experience on their handsets - he wants the real thing.
And that means, for the iPhone, Flash, not Flash Lite. The point being, the iPhone is a general purose computing device, and, though it may require interaction paradigm adjustments (form factor, input schema, etc.), it shouldn't have to compromise richness and robustness.
The current Flash Player really is optimized for the desktop (especially the Intel platform)- but, to be fair, that's an engineering deficiency, not a phyics problem; it is possible for the Flash platform to address...