
Yes, it's based on Mono. Yes, it's based on MonoDevelop. No, it's not open source. There are reasons for that beyond just a Novell moneygrab (although, honestly, there's absolutely nothing wrong with Novell trying to make a buck). According to an InternetNews article, Miguel de Icaza, VP for Developer Programs at Novell (and, well, THE Mono guy), had this to say about the lack of direct Mono support:
"Mono is a traditional .NET implementation with a just-in-time (JIT) compiler," De Icaza told InternetNews.com. "The iPhone has both a legal and technical limitation for interpreters in general, so we had to modify it."
There are a few differences in MonoTouch's .Net implementation and that of "pure" Mono - de Icaza mentioned limitations around some of the new dynamic functionality, mentioning specifically that IronPython and IronRuby aren't supported.
The Program Managers in charge of XCode over at Apple need to take a long, hard look at MonoTouch - It feels much more natural to use, has support for a modern SCM right out of the box (Subversion), and looks like it was created in the last 20 years.
However, on a personal note, this could not possibly make it any easier for me to start writing iPhone apps. I started by reading through the "Hello iPhone" tutorial they have up on their website. Then, I closed the browser, opened MonoDevelop, and created my first iPhone project. This wasn't just my first MonoTouch app, but also my first MonoDevelop app in general.
I already knew about hooking up outlets to UI elements inside Interface Builder from my earlier attempts at iPhone development, so that was easy enough. The magic came in when I went back to MonoTouch to now do something with my fancy one-button, one-label interface. One of the primary benefits of MonoTouch is that they bring the Visual Studio "*.designer.cs" model of development to the iPhone. For every outlet that was created and hooked up in Interface Builder, MonoTouch created a .Net property on the AppDelegate class it created on project creation. The property looks and acts just like the fields you get from Visual Studio when you add controls to a Form in the designer. It's strongly typed to the UI element's class, and supports Intellisense (Monosense?), and the auto event delegate creation you're used to from Visual Studio, whether you know it or not.

Without even realizing what done until after I'd done it, I then just did what I've done for going on 8 years now in a .Net app - used Intellisense to find the event I needed, hit Tab to select it, and then hit Tab again to create the event handler delegate function. Lo and behold, MonoTouch went ahead and did just that. From there, it was just a matter of writing my event handler code to update the label, and I was done. Command-B to build (which seems to do a compile to .Net and then a compile to Native process), and then Command-Enter to run my app in the iPhone simulator app. Tapped my button, my label updated, and all was right with the world.
So, with the test drive out of the way, I decided to just from a button & label app to a UITabController driven MenuNavigation detail app. Controllers within Controllers - no baby steps here. Helpfully, the MonoTouch project's default AppDelegate class includes a comment on how to point your app's main Window to the appropriate UIView to load on program launch. So far, I've got my UITabController's root view loading, and my tabs are... tabbing. Not much of anything on the tabs yet - but hopefully I can take care of that soon enough.
MonoTouch is free for Personal use, but does not allow you to deploy your app to an actual device. The Professsional version is $399 and allows you to deploy to your own provisioned devices or package your app for sale on the App Store. There's also Enterprise apps that start at $999, and allow you to deploy Enterprise-provisioned devices - I'll probably never see that, but there's a good chance I'll be picking pu the Pro version just as soon as my first app is ready.
Me. Considering giving Novell money for something I actually find incredibly useful. Record lows being recorded in Hell today for sure.