My understanding was while that he permitted source redistribution, he insisted that it be only distributed unmodified, and never binary distribution. He also generally refused to accept patches, apparently thinking his pristine work ought to be good enough for everyone. (It was good, but needed features as time went on.) This meant that any "improvements" could only be distributed as patches. As a result, only source-based distros had an easy time packaging it, since sources + patches + build instructions is how they do business anyway. Having no friends with the binary distros, it got little distribution. It also languished on the vine since no one could push improvements upstream.
Apparently he subsequently released both qmail and djbdns into full public domain, which means in theory they could be packaged and distributed normally now. Unfortunately, it seems too late for it to matter.