Good news everyone. Developing with FreePascal (and with any other programming language for that matter) on the iPhone is not prohibited any more.

For more details see:
http://codeclimber.net.nz/archive/20...y-allowed.aspx
http://www.apple.com/pr/library/2010...statement.html

The new changed agreement reads as follows:
3.3.1 — Applications may only use Documented APIs in the manner prescribed by Apple and must not use or call any private APIs.
(No more C/C++/Objective-C exclusivity in that clause.)

(Although, when I checked to accept the new agreements, there weren't any changes which was odd but the PDF agreement has been updated.)