How are Arduino's OSH if Atmel AVR is proprietary?
The components are necessarily going to be proprietary.  There is no feasible way around this.  If you wanted to design a new open source microcontroller from scratch with no proprietary components, it would set you back several billion dollars.  The software used to design integrated circuits costs hundreds of thousands of dollars to license and represents billions of dollars of investment.  Production of the chips themselves takes place in wafer fabs that cost billions of dollars to build, and represent billions of dollars of investment in process technology and semiconductor physics research.  The equipment and process technologies are very closely held trade secrets.  If you are OK with proprietary production, then you can submit GDSII design files (developed with your own open source IC design software) to fabs such as TSMC for production, but the line setup costs will run in the hundreds of thousands of dollars.  

Bottom line: you have to draw the line somewhere as to what is acceptable to be 'open' and what is not.  Open source hardware generally means the board-level design files and firmware sources are available, and generally nothing more.  

Interestingly, there are many open source CPU designs available.  Sun's OpenSPARC is an open design, you can download the RTL description of the CPU core and modify it.  However, convering RTL to a chip requires IC design software or implementation on a proprietary FPGA with a proprietary development environment.