Wow. So many wrong things here.
A very large fraction of professional Flash developers use Flash Develop (third party) and Flex (from Adobe), both free and Open Source, to produce Flash movies. We use them ourselves - the bulk of our widgets were done with Flash Develop. Adobe publishes the source of the "ASC" Flash Actionscript compiler used in Flex - it's written in Java, so can run on pretty much anything.
Perhaps you might consider actually using the tools, or even just talking to an actual Flash developer, before making pronouncements about their quality.
40% of CPU on a such a slow embedded processor is actually pretty impressive. It's actually playing *two* movies at the same time (the Control Panel, and the widget). This is not some multi-GHz desktop machine here - this is a low power 350 or 454 MHz ARM processor with no hardware floating point or hardware graphics acceleration.
Of course, the amount of CPU a particular widget use has more to do with how it's written than the particular implementation technology. It's quite possible (indeed, deceptively easy) to create a clock application in C that uses 100% CPU.
Adobe released full specifications for the Flash file format many, many years ago, and they don't restrict the development of third party authoring or playback tools.
Flash Lite is *not* a reverse-engineered version of desktop Flash - it's also made by Adobe, just a different codebase, since they wanted something more appropriate for small-footprint devices.
Flash Lite 4, which we hope to release soon, adds a JIT engine, which boosts the performance up to 8 times faster in our tests.
Yes, you're correct that there was no comparable alternative to Flash Lite when we created the device. It's also still true. Flash Lite combines anti-aliased vector and bitmap graphics, a network stack, video and audio playback, support for "raw iron" implementations, a full ECMA-compliant compiled language, a security sandbox, millions of existing trained developers, a rich ecosystem of tools, both Open Source and commercial, hundreds of books and websites with examples, all for a *total* binary footprint of 2MB, with a runtime that will play multiple rich multimedia applications in a device with only 64MB of RAM (actually somewhat less after Linux takes its chunk).
Can you think of *anything* that comes close to that?
There are actually somewhat over 6000 if you include private widgets, however, the current quote of 1500 of public widgets is the union across all devices - there are some widgets that are available only for Infocast and dash. We're actually quickly approaching 1500 in the general catalog.