Windows Marketplace for Mobile is due to launch in a few weeks and there has been some speculation as to whether Microsoft would have the ability to remotely delete apps from handsets. These rumors were put to rest during Microsoft's presentation at the Tech-Ed New Zealand conference.
In the event an application is approved but later pulled, Microsoft can automatically wipe the app from any phone that downloaded the app. At this time, it is not clear if refunds for paid apps will be automatic.
While this may seem heavy handed, other app stores have similar policies concerning downloadable content and the ability to remotely delete apps. Amazon has remotely deleted books from their Kindle readers (Orwell's 1984, of course). Apple has chosen to pull unapproved apps from the store while leaving users' devices alone.
In the presentation, Microsoft also reaffirmed it's ban against certain apps including those that replace "core functionality" as well as rejecting mapping and navigational software from its store. Microsoft did note that they will continue to let users download and install Windows Mobile apps from outside the Marketplace.