The original author appears to be using an iPhone for prototyping, and clearly states that it is the "tablet form factor" that is making things so interesting. Even if they were using an iPhone there would be no point to putting the software on the app store as it would be useless without the appropriate hardware. (Edit: Just noticed author's latest post that yes they will distribute through the app store and sell an accessory. I stand corrected.)
In general, yes it is a bad idea to use consumer technology for devices with the sort of lifetime you find in the medical industry (often up to 10 years). Because of the high levels of regulation and testing, its not cheap to swap out a component for something equivalent when a manufacturer stops producing the one you originally designed and tested your system with.
There is a difference between competing in a business environment and limiting what your customers can do with your product. Although competition may indirectly determine what customers can do (by destroying businesses that may have created software they wanted) it is different from directly controlling what customers can do the way Apple does.
Another idea is to make things so confusing that the customer is no longer sure what they're getting. Just name a managed fund something confusing that makes it seem like an index fund (but still include all the fees like a managed fund).
If its anything like the Archos 7 it will have a resistive touchscreen and a less powerful CPU, which probably explains the price difference. Android is painful to use with a resistive touchscreen because of all the swiping gestures and the pressure needed when using a resistive touchscreen.
In the US, medical devices are regulated by the FDA. When it comes to using 3rd party software, the company manufacturing the device has the responsibility to ensure any 3rd party components function correctly. Its unrealistic to impose regulations on every piece of software that is written "just in case". It is far more practical to put the responsibility on the company doing the integration and selling the device.
Apple's "There's an App for that" marketing is certainly demonstrating the features and capability of the iPhone, but if you think back to the iPod it had far fewer features than a lot of other players (no fm radio, no recording, fewer buttons) and still tremendously outsold everything else on the market. The ads showed people dancing around listening to music, which could have just as easily been used as a product demo for any other music player.
I wonder if it was that they got the few features they chose to implement so right that all the other players seemed broken (most notably integrating with the biggest online music store on the planet). It could also have something to do with the feature of being stylish.
Google Docs already has the most important feature from Google Wave (allow multiple people to edit the same document simultaneously). Wave's mission statement was a bit grandiose -- it should never have been about replacing email completely, the killer app is real time collaborative editing.
In general, yes it is a bad idea to use consumer technology for devices with the sort of lifetime you find in the medical industry (often up to 10 years). Because of the high levels of regulation and testing, its not cheap to swap out a component for something equivalent when a manufacturer stops producing the one you originally designed and tested your system with.