Let me start off with admissions that 1) I am a registered user of Konfabulator and 2) I work at Stardock which makes DesktopX (www.desktopx.net) which if there's a Windows version of Konfabulator would be Konfabulator's primary competiton.
Arlo has shown real poise and restraint. Much more than I would be able to show if roles were reversed. So let me tell you why I think it's so crappy for Apple to do this:
It's gratiutious.
Apple isn't going to sell more copies of MacOS 10.4 because of Dashboard or at least not enough to justify screwing over one of its most innovative developers. Apple harming its ISVs ultimately harms Mac users and Apple itself in the long run. Konfabulator got a LOT of media coverage that the Mac otherwise wouldn't have received. When third parties thrive on a platform and make innovative things, it helps everyone. Believe me, no one was more conscious of just how much media exposure Konfabulator got than me. But it was media exposure that put the Mac in a good light.
Konfabulator is not $200. It's $25. For any Mac user interested in extending their environment with widgets, $25 is nominal. It helps build up third parties who might be able to grow and do even more innovative things in the future. It helps build more user communities.
But now Apple is squelching that. Will it "kill" Konfabulator? No. I'm sure Arlo will be able to extend Konfabulator to appeal to users who need "more" than what's built into MacOS X. But it is going to take away a lot of "low hanging fruit" sales.
And to what end? What exactly does Apple gain by adding in Dashboard? Can anyone who tends to upgrade their MacOS versions anyway honestly say that Dashboard is going to make them more likely to do it given that the upgrades are typically >$100? Let's face it, most of us would get Tiger anyway and if not Tiger, the one after it.
It's just a gratuitious slap in the face not just to Arlo but to ALL ISVs. With Sherlock it was an anomaly. With Dashboard, it's a pattern. Make something that is remotely unique and innovative and watch out, Apple may just throw it into the OS. In the long run, it hurts the Mac and it's just shameful business.
Now, read a counter argument here: http://daringfireball.net/2004/06/dashboard_vs_konfabulator