It's not a difficult post to decipher, but I suppose it does have the advantage of provided a good excuse not to say anything more substantial, eh?
The reference to the "end of the year phone call" is (probably) about how most/ all Cambridge (and probably also Oxford) colleges tend to ask alumni if they wouldn't mind awfully donating to the college -- the telephone calls are placed by current students, so gives us oldies the chance to chat the new lot.
And then the first bit is about your bringing in the B&B story. Difficult to see if it really compares; one was a private business but subject to equalities legislation, and one is a university subject to one heck of a lot of legislation on top of all that -- but in as much as you're right AOG to challenge bookbinder's claim that Universities are free to accept/ refuse customers as they choose you are right. I think most Universities would rather not have this sort of check carried out, since foreign students indeed bring a huge amount of money (as an example, see the student Peter Pedant was talking to).
So far as I can see, this is a relatively simple background check just to be on the safe side. What good it actually does I don't know, because after all if the fear is that knowledge is being passed on then there are other (easier, and less expensive!) avenues to doing that for potential terrorists; and for that matter there's no guarantee that a student won't attend University for perfectly innocent reasons and then get radicalised after he has finished university. The blanket treatment adopted in the US has reduced the number of physicists you actually do want to work in the country, although I'm not sure there has been a firmly established causal link yet.
I can't say I'd enjoy the idea of undergoing such a check myself, although if it remains just a small amount of paperwork at no expense to myself and doesn't take too long to carry out then I'd see it as a minor irritation rather than something that just puts me off even bothering. All the same, this sort of measure looks rather like a way of being seen to do something without actually achieving anything.
Of all the potentially dangerous activities associated with terrorism, a degree in physics seems somewhat low down in priorities.