Myth II Linux Demo
Releasing a program as free software dosen't necessarily imply you can't make money for it. Red Hat obviously turns a profit, as does Cygnus. Companies like Lego are realizing the benefits of open source in markets that aren't primarily software. What's needed to make money on open source games is a new distribution paradigm. For example, some games are 4 or 5 CDs long now, but only use ~20MB HDD space. Most people would rather use the CDs than several gigabytes of space.
Alternately, there's the idea of releasing the engines behind the game (the part that can be reused, and can be educational), but charging for things like levels. Recall that people reguarly take ideas from art and music and don't get sued (imagine if Picasso had patented or copyrighted every style he came up with). Basing a new product off the artwork only requires the art itself; basing ideas off of the engine requires the code.