While I don't think it's a major reason not buy an iPhone, it is actually a fairly big problem. I know of at least 3 high profile apps that have been rejected due to "objectionable content" which was nothing more than a few swear words on content loaded from the web.

My problem, aside from the censorship in the first place, is that they don't follow the same standards in their own apps. Search the YouTube app for any swear word and it will happily give you all the swearing you can handle.