They are just straight up delusional, no? Or at least, have a vested financial interest in maintaining said delusion until the money runs out. They have to hit the point of diminishing returns at some point...
Well, I guess that's one way to put it. Another is "dress for the job you want", startup culture typically seems to shove people in the direction of "aim big and believe in yourself, regardless of what others say" so naturally you get these companies who seem very disconnected from reality.
I'd also wager a guess that the amount of money makes people's reasoning and perspectives get very messed up as well, for better or worse.
FYI there is and been for a long time. Won't claim they're SOTA, but they exists. From the top of my head, I think Olmo (https://allenai.org/olmo) was pretty early, but been more since then too.
I agree most releases today that claim to be "open source" actually aren't, but that doesn't mean "FOSS LLMs" don't exists at all.