IMO ROL should finish Select 4 first (after all, people paid for it 2 years ago), open source suitable elements of the OS which need work (particularly low level components) and concentrate on selling a premium distro package like you suggested. PM has stated one reason why he doesn't like Open/Shared Source is the possibility of multiple versions of components and multiple distros coming about. This could be controlled by putting in place suitable measures to co-ordinate community development and encourage convergence, and/or by the type of license selected - although the latter, if more restrictive, could backfire and cause some developers to ignore RO4 altogether. Even so I can't see how that would be much worse than the current snail's pace closed-source development. Paul talked about taking risks with Adjust32, I think this is a more crucial one.
"Why? What exactly would ROL bring to the party - they have shown a complete disinterest in Iyonix users."
I don't think ROL can afford to ignore Iyonix users any longer. Limiting themselves to only 26-bit hardware (which, apart from the R7500, is entirely out of production) and the A9 is making a tiny market even smaller. What would make things really interesting is if Castle released a new mobo before Iyonix Select was finished, then Paul's company would be even more overstretched.
"They/he only seem(s) to be interested in prolonging the OS fork and making life difficult."
Unfortunately with a dwindling customer base and limited scope of resources, one wonders if that's all ROL are able to achieve.