Is it currently possible to compile Python and PyObjC for the iPhone such that AppStore applications can written in Python?
If not, is this a purely technical issue or a deliberate policy decision by Apple?
No: it's Apple's deliberate policy decision (no doubt with some technical underpinnings) to not support interpreters/runtimes on iPhone for most languages -- ObjC (and Javascript within Safari) is what Apple wants you to use, not Python, Java, Ruby, and so forth.