They definitely do, I didn't mean to imply that DARPA is the only source of funding. Usually for most universities you can look at Large Company X, that operates locally and find them contributing to any department that does the kind of work they need. For example I believe Microsoft heavily funds the CS department at the University of Washington.

Of course this doesn't get you out of the trap of having to do research in the area of interest to whatever large company is funding you. You can do research that isn't indirectly getting people killed ;) but it usually has to be pretty clearly aligned with the business interests of companies funding the research