Here's a simple explanation: Flash would run terribly on iPhone.
Mobile devices aren't built for the sort of baroque content and programming that Flash invites. This is why Adobe created Flash Lite, their mini-Flash for mobile devices.
iPhone could probably run optimized Flash Lite apps. But these aren't embedded on web pages; that's not what the likes of YouTube and GameSpot run. They're meant to power the devices themselves, and Apple already has a platform for that.
I don't have much experience with web Flash on other mobile devices, but I'm pretty much certain that if you ran a reasonably complex Flash movie on iPhone it would make for a very frustrating experience.