Over at the Google WebmasterCentral blog, Adam Lasnik outlined 'the best uses of flash' in terms of how Googlebot reads and dissects content on the page.
Google can rip out the text of a flash file, but it's content without context.
"As many of you already know, Flash is inherently a visual medium, and Googlebot doesn't have eyes. Googlebot can typically read Flash files and extract the text and links in them, but the structure and context are missing. Moreover, textual contents are sometimes stored in Flash as graphics, and since Googlebot doesn't currently have the algorithmic eyes needed to read these graphics, these important keywords can be missed entirely. All of this means that even if your Flash content is in our index, it might be missing some text, content, or links. Worse, while Googlebot can understand some Flash files, not all Internet spiders can."
Flash is not only a visual medium, it's a presentation medium. Information is pushed at the user -- but we know from experience that most users muddle through sites. Even after we analyze keyword phrases, user analytics and usability, our best navigation often takes one or two visits before it 'makes sense' to the user. Until then, their navigation of the site takes a seemingly random approach.
Flash only sites often fail miserably in presenting content in a way that doesn't frustrate or befuddle users. Flash is great for moving graphics or interactive games -- but terrible for textual content.
SEO is a good reason to avoid flash-only sites, but the better reason is user experience. Design houses often ask 'what's the budget?' before they really consider 'what's the objective?'