What sense does it make to spend months on a "free software" project for the iPhone, if Apple can stop the distribution at any point in time for whatever reason? This is a fundamental incompatibility with free software. Apple has all the rights to limit the distribution of free software and its modification to users.
I hope that capitalism is strong enough to make the iPhone only one short episode of a technological fiefdom. There is no free market if you can buy only from one store.