Steven Levy's book goes into pretty good detail about this: http://www.amazon.com/Crypto-Rebels-Government-Privacy-Digit...
At the time the NSA was not pleased about the release of DES and was also very concerned about PGP. There were attempts at laws requiring key escrow available to the NSA among other restrictions on foreign key size etc. It wasn't really until the late nineties that this stopped. For a time they would probably have liked to ban all citizen encryption all together, but it became obvious that this couldn't be enforced (and it's necessary for things like e-commerce).
A lot of early crypto based patents and research were retroactively classified - there was a big historical legal battle to get things where they are today.
If you want to really get a feel for the situation, read Crypto: http://www.amazon.com/Crypto-Rebels-Government-Privacy-Digit... It's a book about how cryptography was finally accepted and allowed in the U.S., and how the NSA handled the growth of everyday crypto (hint: not without a fight).
It's not about a government agency trying to control everything and turn the U.S. into 1984, it's about an agency getting swept up in their own mission of secrecy and surveillance, and sometimes (in my opinion) using it as an argumentative technique to advance their agenda. This is just another obvious example of that.