-No security
Too vague.
-people would be replicating Apple's apps
The restriction against duplicating Apple's apps is bullshit anyway.
-they'd be using private API's
Whoop-dee-do?
-viruses
In theory only.
-they could potentially crash cellular networks, overload things
I actually don't see how this is possible.
-go rampant on the iPhone(As sandboxing wouldn't exist)
Sandboxing is independent of whether or not the app is from the App store or an independent release...
-inappropriate apps would thrive
Irrelevant.
-users would not have a nice market to buy stuff from
I'm not advocating that we shut down the App store, I'm advocating that developers have alternate means of distribution.
-They wouldn't know who to trust and chances are anyone can do horrible things to them.
Then how can you trust any Mac apps you download? How did you ever trust SilverCreator? After all, it's written in a subversive language (REALbasic) that goes against Apple - and it wasn't published through an App store, OMG!
The mac and iPhone are very different. The iPhone has private APIs, sand boxing to preserve user data and keep apps from being monsters, and many other things...
Macs can handle that stuff. Your analogy doesn't work very well; the iPhone needs the security probably most of all.
You just said that the iPhone has sandboxing.
The Mac OS also has some private and undocumented APIs, and has had them since 1984, yet if you use them in your Mac app, you're not a banned thought-criminal as you would be on the App store.
P.S. Pirating would also be through the roof as people could download apps, upload them and allow others to download them for free. Having that sort of free-app method would make the App Store useless as it goes against their goals. Then users wouldn't have a friendly app store to find all the hundreds of thousands of apps they'd ever want.
We already have pirating of App Store apps. Someone buys the app and then cracks it so everyone else can use it for free. Instead, non-store apps could use a standard serial number system.
More music is pirated than paid for from iTunes; does that make the iTunes store useless?