H.264 is an open standard in that you are free to implement your own version of it for any platform that you see fit. It is also open in that no one company or group retains total control of the standard. While you may have to pay licensing costs to use any version of H.264, as I said, you are free to implement your own version (there is an open source version called x264).
Also, the app store is the best way for Apple users to obtain quality software that is free of errata, defects or security holes at a reasonable cost. Adobe's Flash platform however, has several defects. One such defect is that it uses more battery life than it should on mobile platforms. Our devices are designed to be efficient and have a good battery life. With Flash, the battery life on our devices would be less than optimal. Flash also has several security holes, as is on the Mac and Windows. We do not intend to let a security ridden framework on our devices. I hope this cleared up any misconceptions you may have had.