The legally licensed project (which has been in development for over a year) was denied due to a clause in the iPhone SDK agreement which states, "an Application may not itself install or launch other executable code by any means." As the program would allow users to "boot" C64 disks, it violates this clause -- then again, as mobile gaming news site Touch Arcade points out, a few iPhone apps do the same thing, such as Frotz, an app which loads and runs interactive novels.
Will the Commodore rise again? Or will the man continue to keep it down? Only time will tell.