The final straw, apparently, was a change in Apple's SDK language prohibiting apps to be written with anything other than Apple-approved tools, and unfortunately for them, Adobe's solution isn't on that golden list.
Publicly, Adobe has been circumspect, only noting that they're "looking into it," while continuing to develop and support bringing Flash apps into the iPhone OS.
Apple CEO Steve Jobs has trashed Flash as unreliable and called it a dying technology. Of course, any apps built with Adobe tools are beyond Apple's control, and Apple likes control, in case you missed that.
Adobe has already said Apple's refusal to allow Flash to run on its mobile products means a serious business risk. Meanwhile, Microsoft says it will support Flash on its new Kin phones, but it is also pushing a Flash competitor, Silverlight.
As usual, the lawyers on all sides will make plenty of money. If Adobe does sue and the suit makes it to court without a settlement, a final resolution could take years.