The OS development is happening at MeeGo and there you have a collection of open source applications being developed as well. It's up to vendors to take these, take other free software apps or take none.
When it comes to product development the guys deciding on the Nokia investments and the plans to convert them into benefits conclude that having a Nokia proprietary layer is better for business than not having it. Looking at the market and at the business results of companies shipping devices with 100% free software I can't deny that they have a point.
And note that some of the pre-installed apps in Maemo 5 are open source or have a relatively thin closed UX layer on top of open application engines. So it's not that black and white either.