Obviously, modifying the software in-house counts as a derivative work, and I'm okay with that - just not with the idea that customers would then onsell or give away the modified product to other potential customers.
Just selling source code and not granting any license at all would probably accomplish that in practice if not strictly by law. In-house modifications are arguably fair use, and even if not it's basically unenforceable law anyway.
Personally I'd want to go one step further. I'd like to allow (and encourage) distribution of modifications (for free or for a charge), to people who already purchased the original.