By Web Application I mean a web site targeted at Safari on the iPhone that can run "off-line" (by using a cache manifest file, JavaScript database, running full screen from an icon on the home screen.)

The user experience as a Web Application is fine once it's installed, so there is no need for it to be native, and potentially, an app delivered in this way could run on other platforms (mobile and PC browsers.) I'm aware that there are many hardware/API features that can't be accessed in this manner, but that is not a problem.

The App Store provides the possibility of selling the app as well as a central catalog for users to find it. A mobile app delivered over the internet without those advantages faces an uphill battle.

Additionally, I would like to be able to leverage an existing HTML/JavaScript/CSS code base (and skills) rather than porting to a new language etc. Not to mention not requiring an OSX machine to develop on.

I haven't seen anything on the Apple site mentioning this, they are focusing on "native" Objective C/Cocoa apps. One option could be to develop a native iPhone app that provided a webkit surface for the HTML/JavaScript to run on.