I think they should take that money and see if they can get a real development team to use it as seed funds, and then keep a below market slice of equity.

Some people forget that, like Gates, Zuckerberg was actually a pretty good programmer. Its unlikely that Facebook would have gone anywhere had he not been. These Diaspora guys probably aren't as passionate about programming as Zuckerberg was, and thats what you need for a complex project like this. Talent and passion for knocking out tons of high quality code.

Give the money to someone who will use it wisely. There is a clear market opportunity here.