Search Engine War published a post today outlining a test they conducted to see if Googlebot is really following URL's embedded in SWF files. It looks like they are! They are crawling links in SWF files placed on a page with embed tags, and with SWFObject. They are even crawling links in hidden layers.
Search Engine War also coined the term "flash bombing". Basically they are saying it may be possible to embed tons of links in a flash file to get them crawled by Google. Sneaky! Search Engine War is planning further testing of Google's ability to crawl and index SWF file content and links.
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