WiiWare channels were made for stuff like this. Max size for channels is 40MB iirc which should be enough considering the other things that run in channels fine like the Internet Channel(and it has Flash).
Edit: When Netflix first launched on 360 the download was a few MBs.
Yah, but I believe every device that plays netflix streaming needs a special netflix client -- that's specific to netflix. I don't know if they can implement it in Flash only... but my guess it no to that. I can't stream netflix to linux, which is why I suspect this to be the case. I'm just saying that it seems to me that there's no difference between providing a disc vs. d/l clients with regards to licensing / marketing agreements for software. Or at least, it'd be very silly to have such differences.