Updated: See Apple denial below.

Apple store employees caught four teenagers doing the unthinkable – downloading a third-party application onto a demo iPhone – which prompted their immediate banishment from Apple stores "for life."

Two Palo Alto High School students – Daniel Fukuba (left), 17, and Eric Vicenti (right), 16 – met up with two recent Paly grads, Noah Rogers and Anjay Patel, at the Apple Store in downtown Palo Alto, where they made the mistake of downloading third-party car-racing game "Raging Thunder" onto the store's iPhone, according to the Palo Alto Daily News.

While the teens waited for Patel to show up at the store, an employee asked them what they were doing. They said they were playing with the phone. Then the store manager (whom they knew as a friend's fourth-grade Hebrew teacher) asked them if they needed help, to which they responded that they were doing fine. After Patel showed up, the group hung out for "less than five minutes" before they left. But they didn't get far – they were chased down the block by the manager who told them to "Stop right there." The Apple store manager called the cops, Daniel's and Eric's parents, and the four teens were detained for 2.5 hours.

"After being lectured by the manager on the dangers of 'hacking' into the phones, the teens were photographed and told their pictures were being sent to all Apple stores 'so they'd be on the lookout for us,'" Rogers told the Palo Alto Daily News. Rogers, who worked in the Apple store over the holidays, yawned off the lecture.

"All you have to do is plug it in a laptop to restore it to normal," he said.

Ironically, the bust comes just a couple months after Apple announced it would open the iPhone platform to third-party developers.

"We’re excited about creating a vibrant third-party developer community with potentially thousands of native applications for iPhone and iPod touch," said Steve Jobs, back in March.

Seems like Apple store employees don't share Jobs' excitement yet.

In the meantime, Fukuba says he's getting the hero treatment from his friends at school.

"Everyone's like, 'Whoa! You guys are bad-asses for getting banned from the Apple store,'" Fukuba told us. "I'm still big on Apple phones, I just think the security guard and store manager made a big deal about it . The security guard was a real tool – he was very serious."

UPDATE: An Apple spokesperson insists there's no merit to the teens' story.

"They were not banned from the Apple store," said spokesman Steve Dowling.

So why were the guys under the impression they were banned?

"I don't know, you'll have to ask them," he said.

UPDATE: We did ask them, and Fukuba says Dowling was ill informed. We have a call in to the police officer who was called to the store, and will update the story again when we hear back.

Photo: CourtesyKonstandinos Goumenidis /Palo Alto Daily News