iOS developer Manfred Nerurkar writes on his blog that he was just called by his Apple Developer Relations contact and told that Apple has made an about face on this issue. Apps using UIGetScreenImage will no longer be greenlit for the App Store. Instead, developers will need to use standard Quartz methods (as mentioned aboved) or migrate their camera capture code to AVFoundation.
As Nerurkar points out, this decision will force developers to refactor their code and, in doing so, limit screen capture to iOS 4.0 or later deployment. iPhone 2G users will not be able to use camera-centered utilities as iOS 4 AVFoundation functionality cannot be included on the earlier platform. Any 3G and 3GS users who have not upgraded from iOS 3.x will also be affected. That means that Nerurkar's iCamcorder and iWebcamera will lose a large part of their audience.
Nerurkar's Drahtwerk firm is not the only one affected. Popular scanner apps such as Occipital 's Red Laser (now bought out by eBay) have a large early model/slow adopter iPhone user base, and if they have to be updated to use the newer methods they will be leaving those users behind.
More discussions are ongoing at the Apple developer forums (behind the paid dev firewall).