As someone who previously competed on Kaggle, this seems a reasonable decision. In previous contests it was pretty clear if you wanted to do something that used third party data you should get pre-clearance for it from Kaggle/contest organizers.

The disqualified competitors here seem to have assumed that CC-BY meant you can do whatever you want with data, when actually that's far from true. CC-BY is solely about copyright and doesn't address other rights (e.g. model release, gdpr, etc.)