I paid £446 for Redhat Linux recently, so what have I paid for if it's 'free'? That covers one processor whether development or production. £76 for a desktop version.
The £446 is for the server version. Not sure which Windows version you can compare it with (Small Business edition) - so may be more expensive, but does not have the licensing problem AFAIK - i.e. no limit to how many clients can connect. Redhat Enterprise Linux ES (which is the one you are referring to) actually supports 2 cpu's and 8GB of RAM - http://www.redhat.com/software/rhel/es/.
Redhat Linux Pro Workstation costs £67.99 and so is much cheaper than XP Pro. AFAIK, you can also use it on as many PC's as you like, unlike Windows.
The free bit is that you are not tied to the vendor - if you decide to use another Linux distro, you can just replace Redhat and your existing apps should still work with the new system.
If you decide you don't want Windows any more it is a lot more difficult (i.e. you may have Windows apps that don't work on other OS's).
If Open Source was so bad, why is 67% of webservers running Apache? If not for Open Source/Standards the internet would not be in the current state it is in now (think BIND, TCP/IP, HTML, HTTP)