This... seems reasonable? If you want to modify and distribute Rust/Cargo then you have to call your distribution something else. Call it Oxide/Freight and you’re set.
The word “Linux” no longer has a singular meaning. And distributions have their own branding.
If someone wants to release DebianRust and DebianCargo that would be perfectly fine and non-confusing. A distribution could also make an agreement to use the Rust/Cargo trademark under some mutually agreeable terms. Likely having to do with no major changes and staying updated.
Sounds like a fair and reasonable outcome?