Can you modify code under the MIT Open Source licence?

I'm considering building an community over Pinax. The out-of-the-box functionality covers maybe 60% of what we need to do. We're more than happy to debug and support the base code set but need to keep extensions that add unique functionality proprietary.

Will the MIT licence permit this?

Yes.

There's only one condition in the MIT license:

The above copyright notice and this
permission notice shall be included
in all copies or substantial portions
of the Software.

As long as you don't violate this condition, you have the right to do pretty much everything with the source code you want to, including the creation of a derivative work and its use.

Just make sure to signal the copyright of your extensions appropriately, so your work is not mistaken to be under the MIT license.

Usual disclaimer: I'm not a lawyer and this is no legal advise.

I am not a lawyer and this is by no means legal advice.

However, MIT is a very liberal license that plays pretty nicely with closed source extensions.

Short version: yep.

http://en.wikipedia.org/wiki/MIT_License