Yes I believe this is the case. You didn't have to be an active player but you had to have a SE account with XIV previously activated.I think what some people are missing here is that "active FINAL FANTASY XIV account" is referring to an "active FINAL FANTASY XIV service account" listed under "Select Service -> FINAL FANTASY XIV" on your Square-Enix Account Management page, which hasn't been explicitly canceled.
You don't need to have any paid options (ability to log into a character in FFXIV), to keep your FINAL FANTASY XIV service account active. Keeping an active FFXIV service account without any active characters has always been free. As long as someone had an active FINAL FANTASY XIV service account they could apply for Alpha.
This is a result of Square-Enix designing the billing system for FFXIV 1.0 to be user-friendly. You could let a month lapse, have all your character options canceled, and during a future month only need to re-activate you character option(s), without the hassle of needing to re-activate your entire FINAL FANTASY XIV service account.
This doesn't explain people not being able to apply with a closed XIV account though...
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