Are you kidding me? It threatens their App business model a lot more than Flash.
OnLive gives away FREE app which turns iPad into a dumb terminal. Apple does not make a penny off of it, OnLive gets to keep all the revenue which it collects through a website, not App Store. No 30% cut for Apple. Not only that, but you don't need to buy an $500 device to act as a dumb terminal, you can just as easily buy a $200 tablet, since all the hardware needs are on the server side. And last but not least, the games are not written for the iOS platform, there is no lock in. You can use iPad today, and switch to a cheapo Android device tomorrow and get exactly same experience and save $400.
At least Flash runs on the device, so Apple can actually deliver some value like a faster processor to run things smoother, etc. If everything is run server side, the server maker is the one delivering the value and gets to make the money. You are just selling touch screen display and a wireless modem.