There's a clear explanation for that: Quote from their blog post:

"Why We Make You Type “$0” We want users to understand that paying for software is important and not paying for it is an active choice. We didn’t exclude a $0 button to deceive you; we believe our software really is worth something. And it’s not an attempt to get rich quick; currently the only people who have received money for working on elementary OS have been community members through our bounty program.

It’s about asking a fair price to offset the costs of development. It’s about securing the future of elementary OS to ensure we can keep making software that millions of people love and use every day."

While I understand their explanation - and agree with the theory - in practice the same active choice would be achieved by displaying a $0 button that users have to actively click on.

The simple fact is: when I first went to their website I assumed it was a paid package.

Ubuntu does mostly the same, except there's a "download without donation" link at the bottom : http://www.ubuntu.com/download/desktop/contribute/?version=1...

In what way does that make it less free or open

It doesn't. This distro is supposed to be about design and usability, though. If that's their idea of usability, I think I'll go elsewhere.

Their idea of usability is different; they want you to pay. Don't underestimate the power of the default.