They couldn’t legally create a closed source SteamOS, but they also aren’t required to “upstream everything”.

I’m not a legal expert of any kind, but AFAIU they are only legally required to send you the changes they made to the source code on request (with GPLv3).

Though I disagree that this is Valve being nice, IMO doing this makes sense for most companies working in this space, as their code being accepted upstream means they benefit from anything the community has built up around the project, and they don’t have to play catchup with upstream.