Is that a bad thing? It's their data, and it's helping them. I think the damage to their brand among developers is happening right here (I'm sure as hell staying away from Zillow in the future). Compare that with the 'damage' it would cause some random consumers who may or may not have a problem with izillow. Not worth it.
There are people out there who will read "unofficial version" and still not know that it's not official. Those people will not be any more clued in just because it has a different name - if it looks/works like zillow, it is zillow. Targetting this level of understanding is futile.
I went and looked at it, and I would have probably assumed it was affiliated with Zillow if I hadn't read this posting first.