This post serves as an ever changing brain dump of thoughts and opinions about the question, “Is Flash Section 508 compliant?” (Consider this a rough draft.)
Flash Web content and Flash Web applications are inherently neither Section 508 compliant nor accessible.
That being said, Flash is multimedia. It must therefore, irrespective of the context or the audience for which the Flash is intended, still meet certain criterion, the least of which is to provide textual equivalents to all Flash content, irregardless of implementation and purpose, to be Section 508 compliant.
To be exact, it must meet Section 508 §1194.21, as well as Section 508 §1194.22 and Section 508 §1194.31. For example, the controls of Flash objects must behave like all Web content. It must be executable from a keyboard, must provide a well-defined on-screen indication of the current focus, and each control of the flash content must provide sufficient information about its identity, operation, and state to assistive technology.
This does not pertain to just blind users and screen reading software. User input can not be relied upon to always be coming from a mouse type input device. A professional Web developer must always test their products with alternative input devices available, e.g. a common keyboard. That notwithstanding, in developing accessible flash, the development team may want to consider the Accessibility.isActive() function in ActionScript to detect for screen readers and provide additional buttons or turn on self-voicing features if this is within the scope of the project.
Nonetheless, my fundamental and recurring question is “Why Flash?” In the professional Web community it is the popular opinion that the only thing that Flash is good for is delivering video and audio. Anything and everything else can be built with properly written and unobtrusive JavaScript to obtain “flashy” looking sites and applications. When Web applications and sites are built with this in mind, there is no need to expend additional effort and resources on compliant alternatives.