This isn’t correct. WiFi router ships with GPL Linux and proprietary router software. The company / foundation creating the distribution just needs to have a license for the proprietary bits.
No, that's not entirely true either. Depending on where the proprietary bits are, it's the other side that is the problem. It is a violation of the GPL. So the usual workaround is to shift the responsibility to the user so that incompliant stuff is done by the user by the way of a script that runs on the user's behalf.
If the wifi routers are shipping with binary kernel modules, then yes, it they are breaking GPL. This problem is actually common with embedded devices.
First, if you're talking about the lawsuits over wireless routers, that wasn't Conservancy, that was the Software Freedom Law Center (SFLC) working with the FSF. (And some feel those lawsuits were poorly timed, preempting active negotiations in progress and being largely responsible for Cisco ceasing large Linux-based projects in progress.)
And second, to answer your question, partly because Linux is sufficiently good and has wide enough hardware support that it's still easier to use Linux legally under the GPL than to use another operating system, and partly because if you're going to use another operating system with narrower hardware support you might as well use a tinier embedded one and ship cheaper hardware (which is what Linksys/Cisco did with the WRT54G, shipping VxWorks and less RAM, and then selling the more-Linux-capable WRT54GL as a higher-end product).
