Without the approval of the person who wrote the Login Server code, it would be illegal for the source to be opened. And, it has been said several times that they are clearly against it being opened and are no longer involved in the project. That is the simplest explanation of why the source will not be opened. There are other reasons why it would be a good or bad idea to open it, but without the approval of it's writer, there is no reason to even discuss it further.
If we ever get a an alternative to the Public Login Server, it will come from people who are currently working on completely new code for it. It sounds like a probability that they probably will release something that will allow people to run private servers without relying on the Public Login Server.
In most cases though, I think EQEmu servers would benefit in many ways by using the a stable Public LS over a private one. Having your server on a list of 30ish other servers means that thousands of people will likely see your server name and if it is good, they may give it a shot and play on it. If everyone was running private LS's, then they would have no choice but to advertise constantly for their server so people would even be aware it existed in the first place. They would have much less exposure to the current EQEmu community. And giving the many servers only pop up for a short time and then disappear, it would be nearly impossible to keep an accurate list of currently active private servers. At least with the public LS, it is easy enough for people to log into it and see exactly which servers are available, how popular they are, and maybe a little bit of info about what type of server they are. And, they can connect to any server on that list without having to change any configurations on their end, which is a big benefit to people who are technically challenged :P
I fully agree that it would be a good idea to have a private LS solution to have as an option for servers that wanted to use it, but I also firmly believe that without the Public LS, this community would split up and die very quickly. The only reason WoW emu servers are able to handle being private is because they literally have millions of potential players out there actively looking for decent WoW emulator servers. With EQEmu, you are talking about a small fraction of those players, more in the thousands range.
Once the stability of the LS is an issue of the past, I think this project will have the opportunity to grow considerably. With the addition of the new SVN and the amazingly frequent updates that come from the current dev team, I think more and more people will be finding that EQEmu is where they should make their new home
