They support what software will make the iphone more popular/sell better/bring them more money. ToS can be changed. First all the stuff from id and now from the boys at Epic. Looks like the iPhone could have some really cool games coming soon.
You still need to compile the .app on a Mac because it uses xcode and the SDK. You can create projects in Unity, on PC, then take them to the mac and they will work. But its an impossible way to test how things handle on the iPhone. I doubt there will be any flash games soon, unless Apple resolve the dispute.