I am building software in PHP right now which will be released with a free version and several premium versions.
I'd like a license which allows people to freely modify the code, but not to redistribute it, or include it in proprietary software or any other software without a license.
Would the MIT license be best?
No, MIT is very permissive. It grants "without limitation the rights to use, copy, modify, merge, publish, distribute, sublicense, and/or sell copies of the Software,"
The only condition it places is that you must include the same copyright & permission notice (I think, IANAL)
I don't know of any open source licence that forbids redistribution, but to hinder inclusion in proprietary software, you could consider a copyleft licence like GPL, which places the condition that recipients "must license the entire work, as a whole, under this License to anyone who comes into possession of a copy".
This doesn't mean that others cannot use or sell software built upon your software, but it does mean that if they do, they must release the whole thing under GPL.
Note that you, as the copyright holder, can do whatever you want (as long as you don't include someone else's GPL code). If you want to create a separate closed-source application that builds upon your GPL software, you can. If you want to sell others the right to include your software in a non-GPL project, you can.
Here is a comparison between types of open source licenses : http://developer.kde.org/documentation/licensing/licenses_summary.html According to this link MIT will allow distribution in proprietary software.
I am not a lawyer but I think you need to provide your software using dual license. User may download as GPL or Commercial like they did with DataObjects.Net framework.
