Shopping a term sheet means that when you get an investment offer, you go shop the term sheet around to other VCs to try to get a better offer. As you might expect, VCs don't like that. http://cdixon.org/2009/09/02/dont-shop-your-term-sheet/
Agreed, Considering the "C" stands for Capitalist, a competitive market shouldn't scare them. IMO they want you to play by their own rules, not "free" market rules.