As of June of 2008, Google does crawl and index some aspects of Flash. It can find certain text elements, and it can find and follow certain links. I am seeing a lot of sites that used to be invisible to Google now being found and indexed, and inner pages of sites that used Flash navigation are being crawled and indexed.
However, so far I don't see Flash sites ranking nearly as well as those using HTML and CSS (XHTML). The rare exceptions are very strong brand sites that have very strong linking (e.g.,
Pontiac.com).
The problem with Flash is that content and links are inside the Flash object, and there are not nearly as many indicators as to how that text is displayed and what is important. With HTML, there are many more such indicators and thus higher trust. Also, Flash sites are often monolithic -- all content served within one object on one page -- much harder to present many topics to search engines and have them rank independently.
Another problem with Flash is that while Google does limited crawling and indexing, no other major search engine does (e.g., Yahoo and MSN). Google has a lot of market share, but it is silly to ignore the 25-35% that is not Google.
So, if you are serious about
SEO, do not use Flash as the primary presentation vehicle -- use HTML pages. It is fine to use Flash objects to enhance these pages, but be sure those pages also have good HTML content that follows best practices.