The "custom" and "proprietary" are largely irrelevant, in that they're merely internal implementation details.

These systems (from SuperMicro or Lenovo, for example) still fit in a standard 19" rack, and still take standard CPUs, standard DIMMs, and standard PCIe cards.

The main limitation is that the complete "barebones" system is indivisible, unlike with most 1S-2S systems, where motherboards can be mixed and matched among a wider variety of chasses. This limitation also applies to high-density offerings like blades and SM's "Twin" line. I have yet to encounter a situation where such a limitation has ever even entered the conversation.