MIT Lincoln Labs is funded by the department of defense. They do a lot of classified work, and may have large areas that are off-limits to non-US citizens. I had a Summer internship at a similar institution, where my work wasn't classified, but was sensitive enough and close enough to classified work that only US citizens were allowed past the keypad lock to my desk area.
Since MIT Lincoln Laboratory's establishment, the scope of the problems has broadened from the initial emphasis on air defense to include programs in space surveillance, missile defense, surface surveillance and object identification, communications, homeland protection, high-performance computing, air traffic control, and intelligence, surveillance, and reconnaissance (ISR).
Lincoln Laboratory conducts research and development pertinent to national security on behalf of the military services, the Office of the Secretary of Defense, and other government agencies. Projects focus on the development and prototyping of new technologies and capabilities. Program activities extend from fundamental investigations, through simulation and analysis, to design and field testing of prototype systems. Emphasis is placed on transitioning technology to industry.
Essentially, the Lincoln Lab is one of several labs that are part of a strategy to make best use of creative people (who can think up things, but don't necessarily want to productize/weaponize them), industry (who can productize/weaponize things, but don't want to be part of a war effort) and military.
To see why they would not hire non-US citizens, consider the first author of the "Steal this Movie" paper, who now works at a Chinese university (presumably on similar problems to the ones that people in LL and at UCSB are tackling).
Interesting. The DoD funds research which enables them to hack into other systems, which means devices and our communications, and in return we get the tools to hack DRM and everything else.
I think maybe you misunderstood the statement. Not funded as in "my startup just got funded." More like, "we are funded by US government grants that preclude us from hiring aliens." Just my guess.