Some do. I went to the University of Waterloo - it's well known for its co-op system (i.e. internships). The program I was under put you through 5-6 4-month internships before you could graduate.
Linky McLink: http://cecs.uwaterloo.ca/
I have to say, it is by far the best decision I've ever made. If I had gone through undergrad without taking internships I'd be pretty fucked right now. Instead, I had a small lineup of name-brand companies courting me out of college and that's subsequently opened a lot more doors.
If you're going through an engineering/CS education right now and you're not doing internships, you're doing it wrong.
When it comes to education and employment, there is no single right way of doing things.
If you want to go down the academia path, I'm sure the optimal course of action is different, but for private sector employment it doesn't get better than internships.
I've done a lot of interviewing, and while open source projects are valuable, they are largely not as valuable to a company as real industry experience. Now, this differs in degrees - if you're a core contributor to a well known library for example, I'd give that a lot more credence than "hacked on various open source things".
Research on campus also pales in effectiveness to industry experience. Software in industry has a lot of constraints and differences to hacking on your own time, at your own pace, and similarly has a lot of differences to academia.
This is supported by my interview experiences - I interview a lot of masters-level people with impressive rosters of research projects on their resumes, but many of them cannot code at all, to the point where I wonder what exactly they contributed to these projects, if anything. On the other hand, I've never interviewed someone way out to lunch who has a background interning at the "big names" (e.g., Google, Amazon, Microsoft, Facebook, etc).
Having a company with a very high hiring bar on your resume is like a gigantic stamp of approval - people know these companies hire tough, and if you passed their bar (and spent time there, and didn't get fired), you automatically have more cred than someone who worked on anonymous FOSS projects or his/her own projects.
We have a similar alternative here in Australia; often known as "TAFE" (in Western Australia, at least) where the fees are typically just up-front and very cheap (we're talking hundreds, as opposed to 20-30k+ for University) for vocational courses, and a bit more for apprenticeships.
Saying that, and mostly due to our mining activity, there are a lot of people seeking this route. In fact, it's not uncommon for an electrician or fitter to earn a good $80k+ for FIFO work with just a couple of years experience (the news media usually says $100k, but that's the exception). Not bad considering what a lot of DBA's, programmers and sysadmins with 1-2 years of experience get.
Keep in mind we have a Government scheme called HECS/HELP, where the Government pays your fees (with some fairly high limits). You pay them back once you earn a certain level of income (the rate increases as you earn more) and there is no interest, however it does increase in June every year via inflation.
Excuse my very high-level overview.
This is the type of school you don't usually go to 5 days a week. Instead, you split that time between school and apprenticeship (i.e. internship). That way, you're forced to see the industry from day 1 and there's no situations where you graduate without being employable (as I often see in CS majors these days).
The result is that you have training as a skilled technician, and can make a good living immediately. The industry also has skilled workers to fill their gaps. It seems like a no brainer to me. You don't need a 4 year university diploma for everything.
Also, it blows my mind that industry bitches and moans about having no workers yet makes no effort in that direction either. My school, WPI, was founded back in the 1860s by industrymen as a "free school for industrial science". Where is this sensibility now? 20 odd companies and approximately 200 citizens helped build the buildings for the school. What happened to this sense of community?
Edit: Now that I think about it, on a slightly unrelated note, why don't universities have mandatory internships anymore? The more, the better.