Newest App Store Controversy: e-Books
The book, Knife Music, by C|Net Editor David Carnoy, was submitted using an embedded e-reader, which is how the SDK clause came into play. Section 3.3.12 of the iPhone SDK Agreement states:
"Applications must not contain any obscene, pornographic, offensive or defamatory content or materials of any kind (text, graphics, images, photographs, etc.), or other content or materials that in Apple's reasonable judgment may be found objectionable by iPhone or iPod touch users."
C|Net (figures) has in-depth coverage of their beleaguered editor's plight. In it, Alexandru Brie, the developer Carnoy enlisted for help with the e-book, said he believes Apple is using word-matching software to search for such content. Or perhaps Apple simply flags sections with such software and then has a human check further.
But more to the point, there's plenty of stuff on iTunes far worse than this. Just check out all the R-rated titles amongst the movies, or even the lyrics to some of the songs they sell.

Of course, you might remember the comment Steve Jobs made to the New York Times about the Kindle:
"It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore."Given that, Apple may just not care. Perhaps Carnoy should have been thinking Kindle, rather than iPhone, for an e-book.