Welcome to Richard Stallman's distinction between "open source" and "free software" (software libre).
I won't take a position on the rights and wrongs of the matter, but the historical fact is that the OSI wanted to define a development methodology without the FSF's ideological freight. They got what they wanted, and this particular situation is a direct consequence.
The licensed software in question is "open source," in the literal sense that you can see the source code. It's not even "source under glass," which puts it ahead of the look-but-don't-touch licenses (naming no names.) If there are limits on what changes can be made to it, well, isn't that the main difference between "open source" and "free software" -- that the licensor can attach strings?
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