I believe you can only initialize the dialog one time. The example above is trying to initialize the dialog every time #terms is clicked. This will cause problems. Instead, the initialization should occur outside of the click event. Your example should probably look something like this:
$(document).ready(function() {
// dialog init
$('#terms').dialog({
autoOpen: false,
resizable: false,
modal: true,
width: 400,
height: 450,
overlay: { backgroundColor: "#000", opacity: 0.5 },
buttons: { "Close": function() { $(this).dialog('close'); } },
close: function(ev, ui) { $(this).close(); }
});
// click event
$('#showTerms').click(function(){
$('#terms').dialog('open').css('display','inline');
});
// date picker
$('#form1 input#calendarTEST').datepicker({ dateFormat: 'MM d, yy' });
});
I'm thinking that once you clear that up, it should fix the 'open from link' issue you described.