This changed recently. MonoTouch should no longer conflict with the agreement. Any statements below are purely historical!
Yes, it seems pretty clear from their license agreement now that if the original application is written in C# then it would be violating the license:
...Applications must be originally written in Objective-C, C, C++, or JavaScript as executed by the iPhone OS WebKit engine...
They even hammer it in a little further:
Applications that link to Documented APIs through an intermediary translation or compatibility layer or tool are prohibited
Kind of a bummer, MonoTouch and the Flash CS5 -> iPhone converter are very cool.
Update:
Apple has dropped (almost) all technical requirements for languages and libraries for iOS, so MonoTouch is without a doubt a viable solution. See Apple's announcement.
Most people here simply want to take Apple's document by the word and say "yes, its banned". Well, here's my point of view: at this point, nobody really has any idea if MonoTouch is going to be banned or not, and I'll explain why:
The Apple agreement version 3 (not the latest, the one before) clearly states that its illegal to use any other frameworks to develop applications other than the ones provided by Apple:
3.3.2 An Application may not itself install or launch other executable code by any means, including without limitation through the use of a plug-in architecture, calling other frameworks, other APIs or otherwise. No interpreted code may be downloaded or used in an Application except for code that is interpreted and run by Apple's Documented APIs and built-in interpreter(s). http://adcdownload.apple.com/iphone/iphone_sdk_3.2__final/iphone_sdk_agreement.pdf
Even though that's the case (and was actually the case since 2.x, apple doesn't have any problem accepting applications that do exactly that. For example, ALL EA games use Lua scripts, and lots and lots of people use external libraries that are not native to the iPhone. Even when the iPhone has those native APIs, Apple never had a problem accepting applications with different versions of it, like SQLite.
My point is that saying "YES, they'll be banned" right now is simply WAAY too early. The only clear thing at this point is that Apple could in fact use that to ban apps. Just like they accept Apps today that are against some of their rules, they'll probably continuing doing so.
There's also the fact that are hundreds (or probably a few thousands?) of apps in the store currently running Mono, and Apple will need to accept updates for those apps. Major apps with millions of sales were created using Mono (and Lua), and I doubt they would refund every single user.
Lastly, Enterprise applications are deployed to iPhones without Apple's approval, and that's a big market that MonoTouch is on (I myself develop enterprise apps). There's no way at this point that Apple could ban MonoTouch for those applications, and that will probably be enough to keep MonoTouch alive for a long time.
New changes to sections 3.3.1, 3.3.2 and 3.3.9 have made MonoTouch (and all other cross compilers/languages/etc) perfectly acceptable on the iPhone. See Apple's announcement
Miguel doesn't seem to think so. See the tweet and Miguel's response. Lets not overreact here and say that Monotouch is dead, or stop developing with Monotouch until some clarifications have been made by all parties involved.
That said I would definitely start putting the heat on Apple for such draconian development policies. Things like this, and the nebulous process that is the approval policy of iphone/ipad/touch apps should strike fear into the hearts of developers. What's next, their license stating that the only Ad platform you are allowed to use is iAd? Not allowing the distribution of free apps without iAd? Slowly raising Apple's share of the revenue of app sales? As developers in a locked down eco-system, we are kind of frogs in a pot of hot water, and Apple is slowly turning up the heat. Now is the time to explore other mobile platforms, because as they get better, the main thing holding people to the Apple platform is lack of applications on other platforms.
I spent months of evenings working on ideas for a killer iPhone app in Objective C. My day job is C#. I downloaded MonoTouch C# when it became a viable alternative and have just spent 3 months converting my code to iPhone specific MonoTouch C#. Which stopped me going mad through switching from C#/Objective C.
What do I do now throw it all away and start again or give up!?!
I feel really sorry for the Mono guys. This is plain wrong. It is one thing to stop Adobe who haven't launched their product and have no customers and to stop MonoTouch who do and also have approved product in the AppStore.
Why would anyone want to build a business and invest in Apple when they will take it all away at a moments notice without being answerable or questionable?
Clearly developers and customers of Apple caring for them and their products is a one way street.
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