Their core user base for the iPhone seems to be not geeks, but teenage girls. Even if it WAS just geeks, we make up a minuscule percentage of the population. Chances are that if I told one of my sisters, or my mother (who all have iPhones) about this, they would roll their eyes a bit, add an entry or two to the "brother is a conspiracy nut" column, and point me to the latest "omg cute!" app that they downloaded.
The iPhone and the appstore are not going anywhere. If developers like us stop building things for it, people who value cash more than they value principles will take our place.
As much as it sucks, this is the world that we live in.