Take the argument a step further: Microsoft "should" have required the 3rd party to provide the code under an open-source license.

Open source wasn't exactly a huge priority for Microsoft in 1995 when the application came into existence. In fact I think it's a testament to their backwards compatibility that pinball survived for as long as it did with little or no maintenance.

Quite the opposite. In 1995, killing open source was one of Microsoft's top priorities. It isn't much lower on the list these days.

Indeed, and it was still on their agenda in 1998. Microsoft saw Linux as their worst enemy and developed business strategies to eradicate it (by means of 'de-commoditizing'). Then, the 'Halloween Documents' leaked. ESR writes:

"In the last week of October 1998, a confidential Microsoft memorandum on Redmond's strategy against Linux and Open Source software was leaked to me by a source who shall remain nameless." This document can be read at http://www.catb.org/esr/halloween/halloween1.html

Read more at http://www.catb.org/esr/halloween/

In fact, I don't think the term even existed back then.

In 1995? Things were VERY different back then. Open source was Microsoft's mortal enemy.