The lawyers in that company have a somewhat different interpretation of the GPL/LGPL than I've seen elsewhere in my career.
VMWare is a pretty scummy company, thankfully open source virtualization has come a long way - it's not 100% yet but oVirt does a pretty good job at replacing vCenter IMO.
If the problem is that you have to use a new app ID and cannot seamlessly install over the existing app, how is that different from using LGPL software installed in /usr/bin on a machine where you haven't been granted root access?
(removed wall off text quoting 6a, was a bit too long)
I think the confusion that one would have to "open source the whole project" comes from the offer that many GPL authors make to violators of their license. Very frequently, if you violate a GPL license, the author will offer to allow you to continue to use the code as long as you comply with the GPL. The author does not have to make such an offer and, in fact, this point is spelled out very clearly in the GPL itself. If you violate the license, you lose any right to use the software, unless forgiven by the author. Since many authors are not interested in suing anyone and are only interested in compliance, they make the offer anyway. Usually the offer is accepted, or the GPL code is removed from the software (there have been very, very few GPL violations that have actually gone to court).
If you buy some software library from somewhere, it will also have a license for use. You are only allowed to use the software according to the license. If you use it in other ways (for example, you accidentally use it for product A, but you have only licensed it for product B), you can expect to be sued. You will have to pay some money and may have an injunction against distributing your product. It is exactly the same.
I've talked with several lawyers at large tech companies that I worked with who avoided the GPL. In one particular case, they had signed an agreement to avoid the GPL (very likely with Microsoft) and were thus were obliged to forbid its use. However, in other cases, I have found the sticking point usually is in the way the agreement is made.
In most software licenses, you can not run the software without agreeing to the license. With the GPL, it explicitly says that you may use the software for any purpose without accepting it. You may even modify the software and even link it to your own code. You only have to accept the license when you distribute it. For the lawyers I talked to, this was very confusing. They had never seen language like that before and were very hesitant to touch a license like it, just because they couldn't relate it to the very precise legal language that they were familiar with. I think, as the GPL has gained popularity, this problem is going away. Most IP lawyers are familiar with the license now and understand how it works.
Having said that, there are a whole class of programmers who believe what you have said. This is unfortunately ignorance, reinforced by decades of misinformation spread by Microsoft when they decided they needed to wage war against the GPL. As times change (and even MS has used the GPL now), this misunderstanding seems to decrease, so I don't think it is a major worry.
Basically it seems kind of silly to tightly define it as "going to jail", when the practical aspects of willfully violating an NDA can ruin your life (which may or may not be worse than going to jail depending on circumstances)
It was specifically referred to as your "liberty" which is incorrect. I never argued that violating an NDA could or could not result in something worse than jail time.
(For that matter, even prisoners have some liberties...)