<p>I was wondering are there any security concerns with adding crossdomain.xml to the root of an application server? Can it be added to any other parts of the server and are you aware of any work arounds that dont require the server to have this file in place?</p>

<p>Thanks
Damien</p>

By adding the crossdomain.xml, the main security concern is that flash applications can now connect to your server.  So if someone logs into your site, and then browses over to another website with a malicious flash app, that flash app can connect back to your site.  Since it's in a browser, cookies are shared to the flash app.  This allows the flash app to hijack the user's session to do whatever it is your website does without the user knowing about it.
If your flex app is served from the same server, you don't need a crossdomain.xml
You can put it in a sub directory of your site and use System.security.loadSecurityPolicy()
http://livedocs.adobe.com/flex/2/langref/flash/system/Security.html
Applications would then be limited to that tree of your directory structure.