Since I moved out to the Bay Area, I've definitely become a fan of this style. So many utilities used inside companies have nothing to do with their business. The one challenge I see is that a project could become so popular that the devs leave the company to start their own based on the open tech.
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Yes, that happened to the company I work for now... twice!
In both cases we've maintained good relations with those developers and the tools they've built are still useful to us.
I'm of the opinion that it's better to hire entrepreneurial types like that if you have the option, and then it's your job to make sure they get some kind of an outlet for that enthusiasm at your company while they work there.
Our existing code is built on a large open source project as well, which helps attract developers who are interested in working on open source...
If you're just shoving lines of code around for pay, it probably doesn't matter as much, but I'd rather spend 2-3 years working with people who could create their own company from scratch and just happened to be working at the same place. Those are the ones you learn a lot from and keep running into years later...