I've been working as an embedded Linux developer for almost a decade now, and yes, most of us kernel hackers are paid for our work. For example, right now I'm working for a major microchip manufacturer that wants to make sure their products are fully supported by Linux. Consequently, they fund teams of open source developers (often hired through big name consulting firms) to port the kernel to their latest CPU's, develop drivers for integrated peripherals, etc. Just look at the email addresses in the submit logs for major open source projects. You will see ibm.com, intel.com, ti.com, redhat.com, windriver.com ..., and many, many more big commercial technology companies. Its been this way for a while, which is why I would always laugh whenever some MS fanboy would try to denigrate Linux programmers as a bunch of basement dwellers. I make a better than average living from Linux coding, with multiple job offers right now, even in this horrid economy.
This is also why I have no worries about Microsoft ever killing off Linux. There are far too many companies making far too much money from Linux based products in market niches that MS has no traction in. The embedded and mobile markets are pretty much owned by Linux, and those are pretty much the only tech sectors seeing strong growth right now. If you haven't yet added Linux skills to your resume, do it.
If anyone wants to ask me about the Linux / embedded / open source consulting world, go ahead and post your questions. I'll check back and answer if I can.