Some people are mixing things that shouldn't be mixed and looking at the matter from the wrong perspective.
Putting Steve Jobs and China in the same bandwagon isn't really a fair comparison. China severly hinders their citizen's rights in a much bigger scale. You can just opt to just not buy an iPhone, period. On the other hand some chinese might not have enough money to go to another country and establish themselves, and have to live with that opressive regime for years, if not their entire life.
Now to the point: Apple has all the right not to want porn in their store. On the other hand you can upload any porn movie/clip you want to your iPhone. If the format is supported, it will play.
Now the problem is, if you want to install an application with porn content you can't, because every application must come from the app store. This IS the problem. I can install whatever program I want on my symbian based N95, whether it comes from Nokia or from a third party site. If it's compatible, it works, just like a windows program.
Apple has been able to get away with this because the iPhone doesn't have a monopoly in the mobile phone market. It hinders your choice, but you can always break the software to make it work, or simply stop buying iPhones to make them learn their lesson.
If all chinese one day decided to stop eating until there was a democracy, or if the women refused to have sex with their husbands, I bet the 'People's Republic' of China would soon change it's name to something less cynical.