It is quite unlikely that the hardware RNG is compromised. It is, however, quite likely (and there have been experiments to show this for some RNG implementations) that it doesn't give as much entropy as advertised.
The big problem is that it's very hard to get good entropy early on in the boot process (when things like TCP sequence numbers and sometimes when SSH server keys are initially generated). You can use a hash of the kernel, but that's shared between other machines with the same kernel. You can use the time, but that's likely known to the attacker (and in some embedded systems will always be the same on every boot, until it queries an external source and corrects it). You can use interrupt times, but the ones from the disk / flash are likely to be similar, if not the same, across boots of the same kernel and the early network ones are susceptible to attack by people on the local network.
The hardware RNG definitely gives you some entropy, and so using it to stir the pool for Yarrow helps a lot here. Later on, there is a lot more entropy. As you start to get disk access patterns based on system use and network connections from a variety of sources, interrupt times give quite a lot of entropy. It still helps to mix in the hardware RNG, however.
As I said in another post, it's quite unlikely that the hardware is intentionally compromised (although it's a nice attack, so I wouldn't guarantee that future versions won't be), but it's very likely that it provides less entropy than advertised. This makes it fine for input into a PRNG like Yarrow of Fortuna (I think Fortuna made it into FreeBSD 10, if not it should be in 10.1), but not adequate for general use. The point of a PRNG algorithm like Yarrow is to generate an unpredictable sequence of numbers from some source entropy seed, which can change over time. As long as you have enough entropy, you will get a cryptographically secure sequence of pseudo-random numbers. All this work is doing is saying 'we trust the hardware to give us some entropy, but we don't trust it to give us all of the entropy that we need'.