It's not just encryption. The battle with Apple is about job security for the FBI.
The FBI has a "can't-lose" position. If Apple is forced by the courts to deliver, they win. If Apple is not forced to deliver, then Apple can be blamed for the next terrorist attack. The FBI will have a ready-made excuse. Terrorist attacks are not our fault. If encryption were not in the way, we could catch terrorists and stop them in time.
An excuse will be necessary because it is likely that terrorist attacks are going to continue. The number of deaths due to terrorism may be relatively small, but the fear factor, which is the whole point of such attacks, is huge. It is difficult to prevent terrorism and the Feds have not been effective, starting with 9-11. Politically, they need a way to direct blame elsewhere.
Also, the latest from Peter Bright at arstechnia:
"Overall, the FBI's request could be seen as a testament to just how good encryption is. The FBI can't attack the iPhone's encryption directly, and it can't bypass the firmware signature mechanism. There's no existing backdoor to the crypto."
"But what the iPhone does have is software lockouts, and the security of those lockouts is entirely up to Apple. Apple's signing key gives the company wide power over the software-level protections built in to iOS. The FBI knows this, and that is why it's demanding the company's assistance."
Peter Bright's excellent explanation of the complex technical issues here