It's a conundrum. Sure, publishing your application in Apple's App Store helps spread your work, but Apple places additional restrictions through the App Store terms of service, which is in direct violation of the GPL, and therefore, a copyright violation. I don't think I need to remind you that in all cases - all of them - where the GPL went to court, the GPL was upheld. No matter the country.
But is it really a GPL violation? The sources can still be downloaded somewhere else, and the VLC application has an about box with information on where to get the source code. Originally, the issue was that Apple placed their own terms of services as an addition to any existing licenses which may be governing an application; they later changed this so that the original license remains applicable, without Apple's additional restrictions.
However, here's the tricky bit as I see it. Parts of Apple's terms of service apply to the App Store service as a whole, and another part to individual applications. While the latter bit has been made GPL-compliant by the described change, the former bit has not. That first bit covers things like the DRM which ties your device and your account to iTunes - which covers your downloaded applications as well.
This bit very much means that distributing GPL applications through the App Store is in violation of the GPL, and this is where a number of VLC contributors have drawn the line. The hope is that Apple will change its terms of service, but I think this is highly unlikely to happen, as they'd need to make special exceptions for GPL-licensed works that could easily be used as loopholes to also fiddle with other software.
The most likely outcome is that Apple will simply pull VLC from the App Store, which is sad for VLC users (VLC is quite popular in the App Store). Still, I'm in full agreement with the VLC developers (so is the FSF, obviously) who are unhappy about their code being in the App Store.