Steve now announces that he will open the iPhone (and iTouch) to 3rd party apps in Feb. It's taking a little longer than than hoped because they are trying to protect iPhone users from viruses, malware, privacy attacks according to big Steve. Of course the apps will have to be digitally signed (i.e. approved by Apple). Still no mention of the distribution model. But I think we can assume they will be sold through iTunes.
This is another example of why you can't really believe anything Jobs says. Was it really necessary to tick off the dev community by lying to them about the web being the app model? Would it have been that hard to be honest and say - "Yes we are working on it, but it isn't ready yet."? Oh right, that might have hurt the share price.