They trusted it before; now things have changed, and they have lost that trust. Previously there was no reason to believe that iTerm would send your terminal input or output to a 3rd party.
Sure there was. If you cmd-click on an URL in iTerm2, it launches the browser, thus sending your output to a third party.
iTerm still do not send anything to a third party, you do, by willingfully using a feature that explicitely states so. If you have concern that iTerm would do something behind your back, then you shouldn't be using it in the first place.
This is incredibly stupid. If they don't trust iTerm to respect their privacy, why were they using it in the first place? For all they know it very well could have been sharing all their data without telling them from the very beginning. Alas, the tool is open source they could just audit instead of yelling at clouds but hey.