I apologize for implying incorrectly that the full text was unchanged since 1986. You are correct that the original Copyright notice was expanded later. To my non-lawyer's eyes the change constituted a clarification to the original terms rather than a substantive change, but you can judge for yourself. Here is the entire text from the source distribution for version 2.0, dated 1990:
* Copyright (C) 1986, 1987, 1990 Thomas Williams, Colin Kelley
* Permission to use, copy, and distribute this software and its
* documentation for any purpose with or without fee is hereby granted,
* provided that the above copyright notice appear in all copies and
* that both that copyright notice and this permission notice appear
* in supporting documentation.
* Permission to modify the software is granted, but not the right to
* distribute the modified code. Modifications are to be distributed
* as patches to released version.
* This software is provided "as is" without express or implied warranty.
You are correct that the clarifying clauses that follow this in the current Copyright notice were added in 1998. They make it explicit that the restriction against distributing "the modified code" applies to the source code, not to the resulting binary executable. I can imagine that the omission of a separate statement in the original text about distribution of binary executables left room for paranoia if one were so inclined. The additional clauses were added at about the time this exact issue came up with regard to the pine license, right?
You call the clarification itself "an obnoxious clause", and imply that the result is non-free, but that is a far from universal opinion. Equivalent limitations requiring a distinction between the original code and any modifications to it appear for instance in perl's Artistic License. The FSF may dislike licenses that take this approach but hey, also there are lots of people who dislike the GPL. And as pointed out at the start of these comments, even the FSF Free Software Definition categorizes the current gnuplot license as "free". To declare that it is "non-free" or "obnoxious" is IMHO staking out a position on the radical fringe of GPL advocacy. It is quite true that the gnuplot license is not the same as the GPL. As to which is "more free", let's not re-fight the GPL/BSD wars on another front. In practical terms, gnuplot's license allowed things that the GPL would not, such as linking to less-free or non-free versions of PDFlib to generate pdf output (no longer necessary since gnuplot now uses libcairo for pdf generation, but I'm digressing...).