The issue at hand is this: Does the restriction kill competition by forcing developers to create applications that only run on Apple's devices rather than work with other operating systems and hardware like those from Google and RIM?
Adobe had been working on a feature in Creative Suite 5 that would allow Flash applications to be ported to the iPhone. Under this rule, those apps would be rejected.
This comes days after Apple published an essay from Steve Jobs explaining why his company's devices do not support Flash. In the essay, Steve said that Flash "...is no longer necessary to watch video or consume any kind of web content."
Adobe CEO Shantanu Narayen responded in an exclusive interview with The Wall Street Journal, saying that Apple's adherence to a single platform is a detriment. He concludes that Adobe's concept is best for most developers, as it allows them to distribute apps out to many places rather than forcing them to pick one. Narayen then warned developers against the "cumbersome" nature of having two workflows, one for Apple and one for everything else, while Jobs suggested that Adobe abandon Flash and adopt open web standards like HTML5.
Note that launching an inquiry does not mean the beginning of formal proceedings. Inquiries are conducted to determine if formal action should be taken. In any case, this won't be settled quickly or simply.