Is that an official part of the developer agreement, that you can't build a browser based on any other rendering engine? I don't remember the details from when the App Store was first announced, but I keep hearing that condition repeated.
Anyway, while it's pretty cool that people are allowed to build browsers qua browsers, their usefulness seems hamstrung by the fact that you can't set a default browser for the whole iPhone OS in your prefs. So in the occasional app or not-so-occasional e-mail that has an http:// link, you'll always be sent to Mobile Safari, even if you prefer to do your browsing in some new app.