I'd be 100% okay with the government stating no grant money can be used for funding DEI, but the actual wording in the grant prevents organizations like the PSF from any DEI, whether or not it is funded by the government grant. That's overly broad and seems likely to be an infringement of the first amendment (though I'm not a lawyer, so this is my lay interpretation).
But hey, some of the same people that celebrated the cancellation of Tim Peters are celebrating the "bold" and "audacious" step of the PSF now (I don't mean you, I mean others).
EDIT: The Python fascists can get this one down to -4 as well to distract from their incompetence.