"If they want to call it open source, whether it follows the accepted definition or not, noone can stop them."
I wouldn't be so sure about that (thinking trades description law here), but even if they could I don't think you have any conception as to how hostile the reaction of the real Open Source community would be if anyone were to try that.
"If they own the IPR to the OS, it's theirs to licence [sic] as they see fit."
True, but if they want their project to be attractive to Open Source developers then they do not have that freedom. The OSD is the standard against which they will be judged, and I for one would be very reluctant to work on anything which did not meet that standard.
A far better strategy would be to release selected parts of the OS (the bits that need work) under a truly free licence, and leave the remainder proprietary.