So, my understanding is that Apple is refusing to create a version of iOS that would allow FBI to crack encryption on this one phone because then it can be used to do the same on other phones, right?
In A Message to Our Customers Apples Tim Cook described the software ordered by the judge as a "backdoor" and explained that "once created, the technique could be used over and over again". What exactly he means by "technique" is unclear: It seems to suggest that any weakened version of iOS Apple supplied to the FBI might be installed on other phones. Some observers have suggested that even if the software checks the phone's hardware ID, it might still be compromised. There is merit in this argument given the difficult job of designing and verifying highly secure software coupled with at least one new potential channel (hardware ID spoofing) for attacking these iPhones.
However, I think Cook's argument is actually broader: That the larger risk is the Pandora's box opened by setting a precedent forcing them to undermine the security of their product. If the United States succeeds here, how long will it take for other countries to demand the same access? I find the international implications on the privacy of journalists, dissidents, etc. acting in (even more) repressive countries very worrisome indeed.
OK. Three more things. First, we have good reason to believe that the US National Security routinely lies to the American people and our elected representatives about the value of their security intrusions. "Terrorism!", "think of the children", never mind that the FBI acts illegally (spying on congress, anyone?, Stingray surveillance?) and openly desires to routinely thwart our electronic security. Second, Apple has a lot to gain by proving the security of its products through this fight. Trust in products from US electronics companies is falling due to revelations of pressures to add backdoors (among other things), and the FBI's failure to access this phone is the best kind of evidence that Apple has not compromised it. Third -- and this is complete speculation on my part -- it is entirely possibly that Apple has previously received even worse orders to compromise security, but secretly, under the auspices of a National Security Letter, and that this is really a proxy fight against a secret court with no appeal process.