There is an enhancement to Flash that supports access to files on the local host system. The page that discusses cross-domain policy should have this information added.

http://www.macromedia.com/support/documentation/en/flashplayer/help/help02.html

Thanks for the link. There is actually a mention of local storage in the section on same-origin policies for Flash. I intend to dedicate more air time to local storage mechanisms at some point (particularly since there is some promising HTML5 work around these aspects), but it would have to wait a while. Added to my TODO, though.