Some initial observations regarding my first twelve hours with the Flash 10.1 beta on the Nexus One:
Flash scrapes a pass in the performance test. Videos can be choppy at first, but after a little while they seem to play smoothly enough.
Flash utterly fails the UI test; forget any video playback controls on any Flash video you plan on watching. Tested it with the Engadget Show live last night and was unable to change the volume, also tested with some Zero Punctuation reviews and similar problem. It appears that Flash renders at the Nexus One's native resolution (480x800) which means the playback bar on virtually any Flash video is so tiny it's unusable. There's no automatic fullscreen mode when you double-tap a Flash context like some of the earlier demo videos mentioned, but the 'fullscreen' button on many Flash video players work fine (of course, Flash contexts that handle double-taps themselves to go fullscreen work fine).
Photograph here with SD card for comparison; you can't pinch-zoom in fullscreen mode, so how on earth are you ever expected to press any of the controls? This is worsened by the fact that Android phones' touch sensors aren't the most accurate either.
I can't give comments on battery life one way or another. The Nexus One's battery life is poor by default, but after watching a short Flash video or two I left the phone (in sleep mode) on my desk overnight; the battery was dead by the time I woke up.
Overall, for Flash to work on mobile devices virtually every Flash video site is going to have to redesign their Flash video player to support touchscreens. They may also have to re-encode all their videos for best performance (Flash keeps popping up 'This video is not optimized for mobile').
That being said, with the web as it is today, I don't see how Apple can ignore Flash for much longer unless there's significant movement to HTML5, which offers less features and generally performs worse than Flash, in the next year. To be honest, I don't see that happening; the pace of the web is glacial, at best, even when Apple is trying to force peoples' hands. It's really nice to be able to go to a website and not have to worry about whether it uses Flash or not; before this, I'd have to get a laptop out if a site demanded it. I don't think that's where Apple wants the iPhone or iPad to be, and I think the egos on both sides have done enough damage.
I think Apple should put together a Safari Plug-in SDK for iPhone OS, and let developers decide. It's no more difficult to create a Safari plugin for iPhone than it is for the Mac, and Apple can sandbox them as much as they like, run them in a separate process and use IOSurface to draw them in a web view. Let the plug-ins access the same APIs that App Developers can, and let any developer submit them to the App Store. Why should Adobe get special privileges? Why can't Engadget, say, write an iPhone plugin that adds additional interactivity to their website when viewed on an iPhoneOS device? Should we wait for the web to catch up, or should we make something great using native code?
To prove a point, I have sample iPhone Safari plug-in source code available from my GitHub. You can test it in the Simulator, or you can test it on a jailbroken device. Make something amazing with it, and give Apple a reason to give us a plug-in SDK.
I posted a video on Vimeo showing part of Lights Off running as an iPad Safari plug-in, just to give a concrete example: