Correct. You can fork the Android code [1] as you have always been able to do. This is exactly what third-party Android builds do. The restrictions are for the Google's official Android SDK binary package [2], and this should not come as any surprise as it is basically the same as what many open source vendors do (CollabNet, RedHat, and ActiveState come to mind as examples, but there are many more).
The confusion appears to stem from the fact that people are conflating the official, supported binary distribution license with the source code distribution license. These need not be the same. While easy access to binaries are convenient, it is certainly not a requirement of open source. And while it might be nice if every single thing in binary Android SDK was open source, this is also not an automatic requirement (depending on the license).
Reading the Terms and Conditions through this lens makes perfect sense -- the clauses about reverse engineering, distributing, developer key protection, all apply to the binary SDK. The source does not have these restrictions, and of course, statements like "reverse engineering" or "decompiling" can't possibly apply in the context of the source code in the first place.
The confusion appears to stem from the fact that people are conflating the official, supported binary distribution license with the source code distribution license. These need not be the same. While easy access to binaries are convenient, it is certainly not a requirement of open source. And while it might be nice if every single thing in binary Android SDK was open source, this is also not an automatic requirement (depending on the license).
Reading the Terms and Conditions through this lens makes perfect sense -- the clauses about reverse engineering, distributing, developer key protection, all apply to the binary SDK. The source does not have these restrictions, and of course, statements like "reverse engineering" or "decompiling" can't possibly apply in the context of the source code in the first place.
[1] http://source.android.com/
[2] http://developer.android.com/sdk/index.html#download