everyone may use and modify it, but has to disclose its modifications. (since its AGPL'ed)
contributions that find their way back into the parent project (dispora) must sign the contrib agreement so that diaspora can license it commercially under terms they pick. this allows them to potentially make some money selling commercial licenses. investors need this security because they do not want to invest in a product that everyone exploit equally.
i think the model is valid and fair. it work for the company i currently work for (zarafa.com).
jarin has the right to not like the license, sure. but if he used his patches to serve a diaspora instance from heroku to anyone besides him self he should (AGPL) disclose those patches. of course this does not mean he should sign the contrib agreement, but that would limit the impact of his work...
jarin calls diaspora dead. i think thats unfair. they did a great job and it will be nice reference material for a rails3+mongodb+haml+jquery+websocket project. good choise of technology in my eyes! (thank $DEITY for not going with php)