Apple Will Not Distribute 'Porn' and Other Inappropriate Content
Friday June 26, 2009 11:55 AM EST; Category: iPhone
Written by Arnold Kim

Apple will not distribute applications that contain inappropriate content, such as pornography. The developer of this application added inappropriate content directly from their server after the application had been approved and distributed, and after the developer had subsequently been asked to remove some offensive content. This was a direct violation of the terms of the iPhone Developer Program. The application is no longer available on the App Store.
To call this particular application "porn" is a bit of a stretch but made for good headlines across the web. The removal by Apple is is interesting, however, as Apple's rating system does seem to allow for "nudity" specifically.
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