Indie rock simply refers of style of alternative rock that was originally found on the independent labels. Saying that Modest Mouse is not indie rock because they are on a major label is like saying Nirvana is not alternative rock just because they are mainstream.
johnki: I just fail to understand why no indies are allowed to be well-to-do without leaving the indie-sphere.
DCT: It has to do with the orgin of the term Indie grew out from the term "Indie Rock" a style of music which can trace it roots back to 60s garage, 70s punk, and 80s post punk. The genre itself started in the mid 80s as alternative/college radio music. Once nirvana hit big the alternative genre split: the popular side was just called "alternative"(formerly "Grunge" or "Seattle Sound") and consided of bands signed to major labels such as Nirvana, Smashing Pumpkins, Hole, No Doubt, etc. and the other half that wasn't mainstream(by choice or not) became known as "indie rock" with bands like Pavement, Sebadoh, Built To Spill, etc and so the term "Indie" had simply became a label/way to say "small" or "non mainstream" and help separate bands from their similar mainstream counter parts.
Alternative/indie rock actually started way before the mid-80s. The Go-Betweens for example released their first single
"Lee Remick" in
1978, which is also the likely the first alternative/indie release. Today, it is classified specifically as indie rock.
Other early indie/alternative rock songs include:
Orange Juice - "Falling and Laughing" (1980)
REM - "Radio Free Europe" (1981)
The Church - "The Unguarded Moment" (1981)
I don't it is accurate to say that alternative and indie rock "split". After all, indie rock is a subgenre of alternative rock, meaning that all indie rock is alternative rock. But I guess you are right the distinction between indie rock and other alternative rock probably began in the late 80s or early 90s.