My headcanon is that this was secretly a test run for what an iOS IDE would have looked like under the original (pre-iPhoneOS-2.0) model where there was to be no native SDK since Dashcode 2.0 does actually include the ability to target iPhone Safari.
Jobs' "sweet solution" of web apps wasn't completely terrible - they added native-look widgets to Safari as well as touch capability and multimedia features. I wonder what might have happened if we had gone further down that alternate path...
Even today Amazon somehow managed to make the Luna web client work on Safari, which shows that with an appropriate server back end you can stream some fairly demanding games (and by extension, almost anything) into a web app.
My headcanon is that this was secretly a test run for what an iOS IDE would have looked like under the original (pre-iPhoneOS-2.0) model where there was to be no native SDK since Dashcode 2.0 does actually include the ability to target iPhone Safari.