Stupid decision, absolutely.
Or is it? The explanation might be simple: the 3.5" screen of the iPhone is just too small for comfortable viewing of such material.
As we all know, in sex and screen, size matters. Thus, Apple may be simply withholding approval of such applications, until the press-conference announcing the introduction of its 10" tablet.
I can just see Steve Jobs pull "one more thing" at the end of the tablet press-conference, and announce the immediate availability of the Porn section of the iTunes store, with a million apps to start.
