This is the worst kind of controversy. Schneier is not wrong: removing the diffuser did, technically, reduce the security of Bitlocker.
Unfortunately, it reduced the security of Bitlocker in a way that is only marginally relevant to Bitlocker's goals, and in a way that is very, very difficult to explain to people who don't routinely work with cryptography.
So it's hard to crisply refute Schneier on this point, even as we have to watch the alarming spectacle of him recommending a rando disk encryption program that offers Blowfish, CAST, and GOST encryption.
Unfortunately, it reduced the security of Bitlocker in a way that is only marginally relevant to Bitlocker's goals, and in a way that is very, very difficult to explain to people who don't routinely work with cryptography.
So it's hard to crisply refute Schneier on this point, even as we have to watch the alarming spectacle of him recommending a rando disk encryption program that offers Blowfish, CAST, and GOST encryption.