mia - I think that language is somewhat ambiguous. On its face, it seems to be saying that an activation fee for a Visa gift card would not be eligible for cashback, but the purchase price would be. Granted, it's hard to imagine that's what they intend it to mean. But one wouldn't generally say, "I paid a fee of 503.95 for this VGC." You'd say, "I bought a $500 VGC, and the fee was $3.95."
As others have pointed out though, this debate is likely academic. Other issuers with more explicit terms excluding GC purchases (e.g. AmEx) generally don't enforce it. Granted, I don't think we have much data on how Alliant is with MS - someone correct me if I'm wrong, but I think this the first card they've issued that people will want to do large-scale MS with.