Firstly, yes, the Diku license is poorly written. It was, after all, written by a group of computing students who weren't even native English speakers - all they wanted to do was share their work while keeping it free for the players.
And as to whether it would stand up in court - that is debatable for all licenses, and could be argued either way with the Diku license. Until such time as it is, however, I think it is reasonable enough to accept the authors definition and honour their intentions.
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