No, they don't. You're allowed to inspect the source code for any reason, but the license does not allow redistribution or modification. TrueCrypt is not open source or free software.
If you take and modify the source, you must remove all references to the "TrueCrypt" name inside of the source code and program interface and not call it TrueCrypt. If you redistribute it unmodified, you must leave the "TrueCrypt" name intact. I don't have a source for the second term, but it would seem to be impossible to have an unmodified work that didn't call itself TrueCrypt -- by removing TrueCrypt branding, you fulfilled the terms of the first part, even if the functionality of the software was actually unchanged.
The intent of the advertising clause is to assert and maintain control over the software in the hands of the creator/owner; this is fundamentally incompatible with FOSS ideology, where anyone can fork and edit, and the leadership of the project is "de-facto" as in the eyes of a community rather than "de-jure". That being said, it is annoying.