Apparently, since their own header site talks about cross platform compatible code. This makes somewhere between 0 and negative sense, considering Jobs basically said "read Gruber" and Gruber said all kinds of things about why cross platform platforms were bad for apple.
From the very beginning Apple have been ok with the ultimate cross-platform applications, web technologies. PhoneGap is a wrapper for web applications.
The reason PhoneGap is ok but Flash is not ok is that nobody controls web technologies, but Adobe controls Flash. PhoneGap developers are not writing for the "PhoneGap platform," they're writing web applications with a thin wrapper.
To be perfectly honest, I expect Apple to bring out their own wrapper at some point so that applications written with HTML5 and local persistence can be monetized in the app store.
Nothing in PhoneGap is against the TOS. It's a wrapper around HTML and JS, providing in WebKit's javascript engine access to system services. In that sense, it's not against the part of the TOS which says specifically you can use Webkit.
We'll have to see how this pans out. The language in 3.3.1 puts Javascript and the Cs into two separate categories with regard to access to "the documented APIs" and taken at face value would appear to rule out Phonegap.
(and yes, I have looked at their source and know how it works.)
The clause in question is somewhat ambiguous. PhoneGap could be seen as a "compatibility layer" that allows you to "link against" APIs that aren't normally accessible to JavaScript:
"only code written in C, C++, and Objective-C may compile and directly link against the Documented APIs"
I...I... I'm really damn confused by this.