Entire businesses like Red Hat & Suse are built on the middle ground. There is room in the market for OSS creators to be compensated for their work.

True, but not everyone wants to be part of a business. What if there were some umbrella nonprofit that collected funds for open source development and redistributed to various projects in approximate proportion to their deployment in production, as well as seed or micro-capital to encourage new contributions?

You mean like http://www.numfocus.org ? That's not quite how their fiscal sponsorship agreements work, but close enough.

Did not know about this. Thanks for sharing, this is very encouraging to see.

I may have been misunderstanding the whole thing, but wasn't the FSF supposed to kind of do that (among other things, but still)?

I'm not sure, I haven't followed the topic closely enough in recent years to form an opinion.