Agreed. From what I understand of how the NDSEG fellowship works versus the NSF is that the NSF tends to be more about awarding the PERSON rather than the research. This means they strongly consider things like whether you went to HS in an area that traditionally sends very few students to graduate school, if you have minority status, etc. as part of the application. The research proposal is less about whether or not they are interested in funding that topic and more about whether or not you can choose a topic that fits your background and research lab, plan experiments, and intelligently hypothesize about where the research might lead. The emphasis is on funding the education of good scientists NOT about identifying new areas of research.
The NDSEG also considers the person, but the emphasis is much, much more on training a particular type of scientist. The DOD is, on the whole, not interested in just funding science for the sake of science and progress in general (as the NSF is) but rather has an agenda of national security and defense. Consequently, they will fund outstanding students who are doing research in areas that they are currently funding (you can check the website to get synopsis of current research efforts) in the hope that these students will stay in those fields after graduation. The way the selection works is that committees similar to the NSF structure evaluate applicants and rank them based on intellectual merit. The highest ranked applicants are forwarded to the DOD, and from this pool the department chooses which outstanding students have projects they are interested in funding.