I think the wrong question has been put forward.
There are substantial merits for using Flash (or Shockwave as I do) but also substantial pitfalls.
I would say that designing a total site in flash would be likened to sending someone the software jewel case without the CD-ROM inside. It makes little sense since the jewel case does not demonstrate anything.
Flash by itself is terrible for developing awareness, and interest which is primarily what you get from a search engine.
Flash is a very powerful tool for motivating, demonstrating and educating someone but without that initial "awareness & interest" you indeed have a difficult time generating web site activity without cross channel or integrated marketing.
Static HTML on the other hand have enormous power for delivering "awareness & interest" and although may lack the dynamic abilities of Flash - these are search engines primary top ranked web sites and tend to make the markets live with "less capable" heavily static text, picture, graphics.
The compromise is obvious - both will work sustantially better then either or.
Therefore building Flash in chunks and within the normally static HTML enviroment is a far superior web site.
In retrospect - building a web sites navigation and usability features within Flash is not good optimal design in practice (thus the title question).
If Googlebot (or any other bot) cannot parse the link structure your web site is a single page and pretty much orphaned on the web - and google hates orphans (they have no outward visable theme and therefore less chance of every being an authority to a topical subject (from the bots perspective anyway). Placing a single standalone HTML web page pretty much produces the same results.
Your sites link hierarchy must be visably to googlebot and moreso - there is no benefit what-so-ever to having your link structure in flash - it adds nothing to the visitors experience (e.g. clicking on a button (flash or not) to turn a page is not: awe inspiring, thought provoking, there's no added value, no educational awareness - it's really not a "big event" where many designers pretend it is.
Case-in-point -- pick up an ordinary book - turn from page 1 to page 2 & page 2 to page 3 -- "was it mind-boggling"?
Using flash to demonstrate "mundane tasks" serves little purpose.
Using flash to demonstrate product/service value, product/service features, informative or educational value or research understanding makes your site successful, in more ways than one.
[edited by: fathom at 9:19 am (utc) on Feb. 3, 2003]