As I understand it, any code worked on for the company, or on company time, is property of the company. However, they do not own the stuff that you do at home as a personal project as long as it does not incorporate any of the code that the company otherwise owns. In other words, they do not have exclusive ownership of any and all code that you produce, only that which is produced for the company. At least, that is the kind of contract that the folks that I have worked and associated with have encountered.
Can't imagine that anything else would be legal. What one does in his free time with his own resources cannot be claimed by your employer.
Can't imagine that anything else would be legal. What one does in his free time with his own resources cannot be claimed by your employer.

... unless you sign a contract offering otherwise, so lets not play Slashdot Internet Lawyer Hero. I'm sure Howard and friends all know exactly what they're doing with regards to all this -- and the specifics of their real life employment isn't really any of our business.
I support the idea - modding a game should be tough and it should force the modders to put a high level of thought into a project.

I don't see where you could have such a situation, unless you put some good limits on the game engine, then release it to the general public along with some documentations and ask them to make something out of it, though nobody would ever take it very seriously. Maybe if you released a game where the game engine had some good limitations, then encourage people to mod it once it becomes popular? That way, the modders might be forced to act like *real* game developers and it would be taken more seriously and then maybe you would have some truly great mods.
I remember when Doom came out. and then some type of doom editor and Doom Sprite editor was released....Then it was all over from there on Compuserve. I remembered playing ghostbusters Doom, Aliens doom, Aliens vs Ghostbusters, Star Trek vs Aliens.....But yea I can see how it would become totally silly by letting it be real easy to pretty much DIY mod for games....Certain things are cool, like ability to set Mission parameters, and ship loadouts, etc.... but when making it too easy for "Ludicrous speed" type mods...Well you guys get the point.
DooM is a great example -- the truly amazing DooM mods that everyone remembers (Alien DooM!) are the ones that had a heck of a lot of special effort... and they all appeared *before* WAD editors that any idiot could use were available.
Yea that was the one I really remembered "Alien Doom!" The rest were after the "wad" editors were released, although some of the simple wads were cool like a few different weapons, but other than that people went over the top with em.
PIO!Zone, with 3,000 new ships for Pioneer! Only $39.99!

(... and then 2900 of them will be broken and then last hundred will be the sample freeware Truspace meshes of things like apples.)
The battlefield community has been pretty hardcore when it comes to modding. I've played 2 mods for 2142, and they seemed pretty well done. (Although I've never tried modding it, so I couldn't tell you the difficulty involved.)
WOW only 39.99? With only three easy payments of 13.33 :D Let me get my hands on those 3000 useless ones :):D I'll have to make use of it somehow :).. Howard your pretty excellent at doing the modeling so just keep on keepin on my friend I know the struggles you have to go through.
I might be a little late in posting but how can I pass up when I see cyberion posting about modding at the start of this thread. I too was one of the modders for the excelcia freelancer mod back in the day; that was right at the start of freelancer modding when people were still figuring out what could be done to the game. The previous server we had been on and abandoned to found excelcia was one of many freelancer servers that turned to crap (again to make clear, it was the server we played on before excelcia that was crap, not excelcia that I’m calling crap).

Unfortunately many people believe that a great ship is one with invincible stats and not one that looks good with balanced stats. I've seen many ships which people spend a couple minutes on the model and give it super stats and call it done. As a result everyone is forced to fly that one ship to stay on level ground with other players, and you’re stuck seeing pieces of crap flying around the server. Albeit this has more effect on multiplayer then single player experiences.

Then you see mod’s where people take ships from every sci-fi venue they can find and mash it together, again in my opinion crap mods which you see often. Let’s go kill some tie fighters in my starship enterprise…

I will grant there were some decent full conversions of games. Also I think we did a decent job on excelcia as an extension of freelancer and making things fit in with the original themes.

So my two cents is I will side with both sides. A carton of eggs can have some good and some bad eggs. The only way to be sure is to open the carton up and look before you buy. So I am fine with the modding tools to be released on a case by case basis with people prostrating before the Pioneer team for rights. Although for single player I wouldn’t mind being able to throw that danrik model I made back in the day in just for the sake of nostalgia, but I would just do that for my own enjoyment to see it fly again, not for marketing out as a great mod, my models would look like crap next to howards.

As for the talk about tools before the game is released…
Just to spite people, release the mod tools first then wait 3 years to release the game / joke
Usually moderated gameplay with homogenous art will produce a well refined product. Leadership, imo, is a good thing. I personally prefer a small team over something completely open... not to say that I have issues letting others run their own business how they like.

The one thing that's nice about having the code/tools out in the open is that after the devs have long gone, if a technical issue comes up, it can be easily fixed.

Ultimately, it's the dev's business what they want to do. Their effort, their domain, their call. Their decisions should be respected and non-pressured.