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Remember those attempts at Flash portals like Roadrunner or that Fantasy Interactive's social network thing? They got redone in html pronto because they made no sense. Same with Ultrashock. And then...Praystation.
Jobs' policy was to remove from iPhone everything that would hinder user experience, given the limitations of the device.
When Flash eats up a whole battery in half an hour people won't say "Adobe is crap", they'll say "iPhone is crap".
This is also why iPhone didn't have multitasking for so long. I had it through jailbreak and it was a battery killer at the time. Apple only introduced it officially when they figured out how to make it play well with the battery — and it's still pretty much an issue today.