So is the theory that OpenAI believes it can’t compete on the open market or that they don’t know this will eventually cost them their consumer business?

I doubt most consumers pay enough attention that they would be aware of something like this. Even if they did, few companies have clean hands these days that is just falls into the general haze of, "everything is awful."

For OpenAI, it is likely a huge contract which gives them immediate cash today. Plus the event can be repackaged in further financing deals. "Good enough for the DoD, with N year contracts for analysis of the hardest problems"