The version downloaded from Radiation's site is DRM-free, I don't think the Steam release is. But yeah, considering how many people actually have and use homebrew in their 3DS systems, I don't think a free 3DS version of the game would cut into his sales significantly - the game is doing really good so far and it's only bound to sell more copies in the future, a homebrew version won't change this. Maybe, *maybe* if he intended to release it on 3DS in the future, but he already said he's not interested and doesn't even own any current-gen consoles, so why not?
Perhaps you could make it a requirement - you have to place your legally-obtained copy of Undertale in the SD card, so that the game pulls assets from there - kind of like what NXEngine does.
Of course that's easier said than done - I have no idea how UT stores its assets, but it'd be worth looking into I guess.