While I'm skeptical that it will actually work, I think it's an interesting alternative approach.
Think of it this way: DRM is effectively a way of monetizing the inconvenience of pirates. With traditional DRM, an unscrupulous person has two options: either buy the game immediately, or wait until it is cracked and then maybe deal with malware or crack-induced bugs.
The Puppygames DRM adds a third option: download the game directly from the creator (no malware or bugs) and play the full game, but with the inconvenience of only playing it offline. This makes the game less likely to be cracked at all -- there's little glory in cracking a game that practically comes pre-cracked -- and a crack is less likely to see wide distribution when the creator is a more reliable source. So maybe more people will experience the minor inconvenience of playing offline, and maybe more of them will pay to have the inconvenience removed.
I agree, but what they are describing sounds less like the DRM we've come to know and hate (yes, I know that's the point of the article, but let me explain). When I think of DRM in, say, music purchases, I usually think of some way of restriction. But here the title DRM actually makes sense: it's Digital Rights Management. This actually enables the developer to distribute the right to the full version of the game to it's customers, not to restrict them. By that same token things like Valve's Steam allow Valve to distribute games, although on much more restrictive terms. Of course the FSF would completely disagree with any of this, but I would definitely like to hear RMS's take on this particular setup.
I guess the big question is going to be "does this scale?"
In the end of any scenario, DRM always means somebody who has rights on your computer over you, the owner.
My computer is mine. I can give others limited access on them in terms of user accounts. However, I will not give myself a user account and give them root.
The pirates can be said for getting things free. They are also more free due to less restrictions on their version of the code.
The main goal of DRM is to increase revenue, be it invasive DRM or less restrictive DRM. Invasive DRM has irritated customers and caused loss of sales. These guys are trying to create trust and goodwill with customers with a less restrictive DRM. It's more of a marketing tactic.
It's actually a pretty good approach, admittedly lot of work for the developers.
Using DRM at all in such a setup looks quite pointless to me.