So, you aren't going to be locked in to buy On2's codec... but looks like despite the fact that they are using an open standard, if you want to intelligently stream the video you will be locked into buying Flash Media Server:
The Motion Picture Experts Group (MPEG) is responsible for licensing of all the MPEG technologies including H.264. As an open industry standard, H.264 content should be playable on any number of devices. And this is where Adobe is making a terrible mistake. Most websites, YouTube included, use a technique known as progressive downloading to stream content from the servers to the client. This technique uses HTTP and therefore is quite limited in what types of interactions can take place between the server and client. Content that is progressively streamed must first be downloaded to the client before it can be played. There are techniques that provide pseudo-streaming using HTTP, but still, interaction is limited to the HTTP protocol. Real Time Streaming Protocol (RTSP) was developed in 1998 by the Internet Engineering Task Force (IETF) to overcome many of the shortcomings of using HTTP for streaming and to provide a open, standards-based way to stream content from a server to a client. The benefits of using RTSP are numerous and include the ability for a client to request a start time of a audio or video file and the ability for the server to monitor the available bandwidth of the client in real time.
According to Tinic Uro’s blog, Adobe will not be implementing RTSP in it’s Flash player. Rather, they will be streaming H.264 (and FLV for that matter) via their own proprietary protocol, RTMP. This is quite unfortunate because even though H.264 is an industry standard, in order to benefit from true streaming technology, you’ll have to use Adobe’s proprietary Flash Media Server which implements RTMP. This is bad news for everyone.
Because RTSP (and RTMP) implements client/server interaction, bandwidth could be drastically reduced. Imagine YouTube, or any other video sharing site, having chapters or sections of a video that could be played without having to start at the beginning or having to wait for the video to progressively download. Imagine being able to click anywhere on a videos timeline and have that video start playing , instantaneously. This is possible with a true streaming solution, but with Flash it will only be possible with Flash Media Server.
Vendor lock-in seems to be the game Adobe is willing to play. To me, this is completely outrageous and I implore Adobe to reconsider this decision. I understand that Adobe is a business and must make a profit. But the decision to not support RTSP hurts education, non-profits and small business, most of whom could not afford the high price tag of Flash Media Server in the first place. By contrast, a number of open source RTSP server implementations exist which are free of charge, including Darwin Streaming Server from Apple. If Flash supported RTSP, I believe the Internet would spawn a new generation of video sites, with new functionality and even greater interactivity. Think of a JumpCut, YouTube, Digg and Pownce fusion. This process alone would help Adobe sell users on their AIR and Flex platform because of the increased interactivity. With Adobe’s decision, it’s unfortunate that innovation in the online video arena will crawl along at it’s current rate 
I don't think it's fair to say that Adobe is merely doing this to force you to buy copies of FMS. FMS hasn't had a reason to support RTSP, since it's been using proprietary video formats for all these years. So, there probably have been zero plans and few good reasons to take the time to implement RTSP in FMS. However, now that FMS will be getting H.264 broadcast support, it will be able to stream to other clients. This opens up FMS itself to be a platform for media delivery to all kinds of consumers instead of just the Flash player. But... at that point it really isn't FMS anymore is it?
I'm not sure that Adobe is really wanting to get in the media encoding business right now... but if they did, they would be wise to just flat out buy On2, lower the cost of licensing the encoder below what MPEG-LA or anyone else is offering for H.264 encoding, and then keep all the profit to themselves. Not only would that give Adobe a way to monetize content views and make some additional money off of the player, but they could also be doing their customers a service at the same time if the price was right. Could it be that they are smart and just trying to scare On2 into a desperate low price per share buyout? Probably a bit too much of a conspiracy theory, but if that is the case, I reserve the right to tell you I told you so ;). A rumor was circulating a while back about the possibility.
With Microsoft pushing Silverlight as the lower TCO video solution and Adobe not owning it's own video codec, it may just be a requirement if they want to play the TCO game. Encoding Flash based On2 content certainly isn't cheap today if you want to make the next YouTube (try about $3000 per server last time I looked into the pricing for the Flix SDK. I'm not sure what the H.264 encoder costs are for large sites, but Adobe has no control over that and isn't in the patent pool, so they don't make a dime off of the encoding process. For smaller sites, you'll be in the clear with MPEG-4 based codecs:
- Nonprofit organizations whose primary purpose is not multimedia do not have to pay licensing fees for distributing MPEG-4 encoded content (whether over the internet or not).
- Subscription services with fewer than 100,000 users do not have to pay royalties.
- Non-subscription sites providing free content over the internet do not have to pay royalties. 
Of course, if you want to use Flash Media Server as well to stream the content after it's encoded that's another $4,500 a server... but there will be Red5 for that.
Interestingly, Silverlight is not much better regard to RTSP--though at least they mention they have been thinking about it. Microsoft does have a server that supports RTSP by default (WMP11 and the Windows Media Server components fully support RTSP... actually they completely dropped their proprietary MMS streaming format with WMP11).
For streaming, Silverlight only supports http as the streaming protocol, it will not do the actual mms or rstp protocol. In the beta we differentiate between streaming and progressive download by the mms:// vs http:// monikers. This will be addressed for RTM, while we will try progressive and streaming for both, http:// will try progressive first and mms:// will try streaming first, therefore is you keep these monikers as hints to the client, you will get better perf....mms is really http streaming. You do have the abilty to specify a port by setting your source as mms://server:port/publishingpoint. Since we are really targeting the internet as our primary medium for video distribution rtsp has had a lower focus and is not in the 1.0 plans right now