I find this interesting and wonder if it may be a Trading Standards issue.
I have no doubt they have the right to insist their equipment is used, it is after all a part of the contract you sign up to and is reasonably up front if you look for it.
What is not clear to me is what happens when the equipment they supplied breaks down out of warranty. I do feel that at the initial sign up that information should be provided, with an indication of likely costs of replacement as it has a bearing on the suitability of the contract....... facts you need to know....... for it is at their insistence that their equipment is used.......a condition that extends beyond the initial contract period.
As it stands you are a hostage to fortune because it is Sky who insist their equipment is used. It may be even more pertinent now as all new customers are full LLU with the added complications involved if they want to move.