Instead of all this negative publicity, why don't they divert their attention to fixing Flash, if that is their bread-and-butter. I think Adobe is just choking their own neck. The popularity of iPhone and iPad will make the content provider move over to updated technology. As we know Microsoft is also trying to push their Silverlight technology to compete with Flash, but I think that one will also go down, as I hear it also has similar issues.
Flash users are their bread-and-butter; the Flash plugin is not. The users don't have to like it, they just have to have it. It's like banner ads: AppleInsider (in this case) is selling a certain amount of your field-of-view for a certain amount of time to, presumably, some kind of advert service, and they also are selling your eye-time to advertisers, then you have an advertising designer who will presumably will be trying to create a high view-to-click rate, and then the business being advertised, which really only cares about the clicks. In the same way, Adobe sell potential users to developers, developers try to convert those potential users to actual users (by making an attractive and usable interface, hopefully), and sell those actual users on to the client business. You only have to be a potential user (ie be exposed to the content but not necessarily do anything with it) as far as Adobe is concerned.
I agree that the iPad will push businesses to have web sites which are accessible without Flash (as clearly is the case for some of the iPad apps available at launch!); however, I suspect that in the case of the iPhone, although it does a very good job of not compromising on web browsing, people still think you can't get web sites rendering correctly on mobile phones (maybe just due to the small screen size) and so aren't that bothered when their site doesn't work on there because they believe the same kinds of problems will plague their non-Flash-using competition.
Silverlight is nothing but a half-hearted attempt to kill Flash, and Microsoft's motivation in that will be similar to Apple's no-Flash-in-the-App-Store stance: Microsoft do not (not AT ALL) want to find themselves in a position where most popular Windows apps are in fact Flash apps which run poorly and effectively destroy (by not making them available to users/developers) all the distinguishing selling features of the Windows platform. In previous attempts to kill a competitor's business (Netscape, Java) Microsoft started with something which was compatible and diverged from there, to considerable initial success. With Silverlight, I think they took NIH too far and failed to get a good foothold because it's not compatible with Flash at all. Because Silverlight doesn't have that big a user base (and a big user base is its main purpose), there's no motivation to put lots of money into making it better, so it wouldn't surprise me if it performs poorly.