What's the likely hood, security issues asside, that much of this code ends up in the 'final' Diaspora product down the line? I might misunderstand their intentions, but as I understand them, these guys are trying to start an open-source project. Open-source projects need momentum before they need anything else. Money is a start, but they need code. It doesn't even need to good code or even passable, so long as it kind of works and provides something for hackers to hack on. If they play their cards right, it's that last bit about attracting hackers to the project that will turn Diaspora into something viable. None of the code they write right now really matters.

Just think of many of the older more established FOSS projects, Linux, Apache, etc. Many of them started out very rough, but attracted developers and turned into something useful. I think that dumping the code right now, was probably the best move that they could have made.