My reading of that is that you aren't allowed to redistribute any modifications or use it for anything other than accessing the tarsnap service.
So not really open source software in any sense that I understand.
[NB My comments is not intended as a criticism of tarsnap or Colin's licensing policy - he wrote it so, in my book, he can license it any way he wants.]
Free to distribute is one of the fundamental defining things about open source [1]. Lets not water it down to the point of meaninglessness like words like `open' currently are.
