Spotted the massive, gaping flaw in the argument yet?
It's 2012, if you make this argument then I am done with you. Linux is how old? How much of the internet runs on it?
Done.
Edit: Wow, really? Why is this still a necessary argument?
The linux kernel is utterly free. Yet it's still developed. It's still a state of the art product. And people still make money off of linux and linux-based products.
Do I honestly have to connect the dots here?
Spoilers: if you can't or don't want to charge for the code directly then maybe you find some alternate way to charge for something else or you use another form of supporting development.
The analogy to the creation of music and movies should be so frelling obvious I shouldn't even need to make it.