During the last 4 months Apple has been pretty tight lipped about just about everything involving the App Store. So I’ve done my best to guess how things will end up. One thing I guessed wrong about is that applications would be encrypted. They arent.
If the apps had been encrypted it would have made it more difficult for people to get access to the raw data that the application uses.
Applications downloaded from the App Store are stored inside your Music folder as ipa files.
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Inside that folder is an ipa file for each application you have downloaded.
But ipa files are really just zip files. Lets pull apart Super Monkey Ball as an example:
First, work on a copy of the ipa file.

Rename from ipa to zip

Double click to unzip, and you find a folder with 3 items inside:

iTunesArtwork is a jpeg format image that contains the application icon.
iTunesMetaData provides information on who bought the applcation, what version it is, when it was bought and other useful meta data about the application.
The folder Payload contains the actual iPhone application. By using the contextual menu you can go further inside the application.

You may notice that most of the png files show up as a question mark in Preview:

This is because they are in a special iPhone format designed to make them more compact. You can use fixpng to undo the compaction. Sometimes the colors will be off:

And there you go.
