Hey Rich,
What is the 'native installer' and what role does it play? Is this an executable that bundles my app and installs it instead of the standard AIR installer?
Yes. It's an exe on Windows, a dmg in Mac OS X.
Would this affect in-app updates via the Updater.update() method (from AIR)?
Yes. You can solve this problem by either using a 3rd party updater (like wyBuild) or just by having your users re-download your installer (the native installer is smart enough to do updates).
Is it possible to build the native installer with Flash Pro 5.5, or do we need to use Flash Builder?
You mean CS 5.5, right? If so, then yes. We have some customers using that successfully.
I also see that Flex is used to call an init() function, but if I'm not using Flex can I manually call the init() function when my app starts ?
All Adobe AIR languages (flex & html/js) have init() functions. But you don't have to use the init() function. Just use any function that runs at the start of your app.