UPDATE: Phil Schiller Responds on Daring Fireball regarding dictionary app Ninjawords and the App Store.

The iPhone and iPod touch are nothing special from a hardware standpoint. In fact, they are in some ways (such as the iPhone camera) inferior to the competition. However, a combination of a fantastic UI and the App Store ensured both devices became top sellers. But the environment is changing fast, and Apple’s doing little to help.

In terms of UI, others are playing catch-up, and this is—bar flinging lawsuits around—something Apple can’t really guard against. It’s long been an R&D department for less able companies, and that will continue. But Apple’s handling of the App Store has gone from the worrisome to the surprising to the outright absurd.

Initially, one could argue that the App Store was new and surprisingly successful, and so the submissions reviewers were caught off guard and made the odd mistake. This was usually rectified via a combination of public pressure and explanation from developers. Now, though, it seems Apple’s being at once systematically destructive, puritanical and utterly stupid.

I reported yesterday on TechRadar about Apple censoring a dictionary, a story initially broke by Daring Fireball. Today, TUAW claims Apple’s about to start removing eBook apps, under the guise of copyright concerns (something Apple doesn’t seem terribly concerned about when it comes to gaming, judging by the number of IP breaches littering the store).

I sincerely hope there’s little truth to this story, but the report claims Apple’s now even rejecting eBook apps from developers who can prove they own rights to the content. If that’s the case, we’ll presumably soon see the likes of Classics, Eucalyptus and Stanza removed from the store, smashing the App Store’s credibility to dust and removing the ability for Apple handhelds to act as eReaders.

In the aforementioned Daring Fireball piece, John Gruber said: “Every time I think I’ve seen the most outrageous App Store rejection, I’m soon proven wrong. I can’t imagine what it will take to top this one.” I think the removal of eBooks and readers would just about do it.