Can you explain this a little to me; Apple's rationale???
Is this because Apple plans to replace Flash with HTML2 (never heard of this before). What are the implications for Apple and for Adobe? What are potential benefits to us the consumer of HTML 2 vs Flash? Why not just have the option of both?
What are or could be Apple's short term and long term rationale?
As to what Apple thinks, who knows 100% for sure.
The general idea is that Flash is a CPU hog and unstable on Macs, and that Adobe is not keeping up properly to develop Flash for Macs in general and that on the iPhone etc the limitations would be magnified.
I have used Flash for quite awhile, did client/server development with it, and really did love it for a long time. Not just liked it, loved it and Director also. Was alot easier to get things that worked as oppossed to dealing with Java. (There is always some ebb and flow as one technology ascends and things move on.) When Macromedia opened things up, I could not have been happier. There seemed to me (and again take it for what it is worth) a good balance of features and size. Later on the software (as a Mac user, but not because of what Jobs said or things I read anywhere, just from using it), it became a bit more cumbersome in both development (i.e., the software bloat that so many different software seem to get) and stability for me as a web browsing experience. Which bummed me out a bit since I really loved it.
As to why I felt that way, it very well could be also be chalked up to the browser/plug-in combinations at any one time depending on the machine. Some of my computers would have more or less issues. Another thing that could be in play is how people using Flash set things up - in other words human issues when building sites that is unrelated to the software itself. Who knows how many Mac users have a bad experience or not or whether it is overblown, but from my personal experience, well I have seen it enough not to totally dismiss it. And over time it seemed to be alot more than that. To be fair, there is also bad javascript and other things that go into the equation.
Add these things together and put them on devices which do not have as much power, coupled with the fact that Abobe seems to have known some issues (the links below has some of it) then it could be part of the answer why Apple went the way they did, though I thought Flash would find its way onto the iPhone etc. Would have been fine for me, because I still like using Flash for things, despite my reservations, and the packaging from Flash to iPhone could have been fun.
Of course I do not believe that is the sole reason and there are other things in play, including Mobile devices and where things are going, such as the advertising market on the phones. The big guys are all beating one another over their heads, trying to mark the territory and grab a piece of the pie. If HTML5 becomes widely used, then things are not tied to a particular software as much, better for Apple. If Flash is still used, then Adobe gets more of the pie. (Semi-analogy, how some websites require IE to be able to use them because of .Net or whatnot.)
If this causes Adobe to refocus on Flash to make the web experience better for Mac users, that is one benefit. If it means HTML 5 is going to be pushed along further and that makes for a better internet experience, that is fine. In the short term it could be guessed that Apple would take the hit since people run the lack of Flash up the flagpole as reasons not to purchase the devices, and as a practical matter that is probably the strongest reason not to purchase Apple iPhones etc. - the one that most people really would notice. (Alot of the other issues, such as the multitasking, are things that most people I would guess would never practically notice or care about. Geeks excluded of course, but even then probably still not deal breakers 
)
People are going to debate this until the cows come home, and I guess we will all see how it shakes out. Don't get me wrong, I will continue to buy Adobe products, have been doing that for quite a long time, and they have some really great software and anything I mentioned are just my thoughts on things in play...
Jobs On Google and Adobe
Some Information on HTML 5
Adobe CTO
