It's particularly interesting since VMware seems, in many respects, friendly to open source. They distribute a bunch of open source in their products and extensively document this, they partner with open source projects like Docker and OpenStack, and they're on GitHub. The sticking point here seems to be that they have kernel-level code that they think isn't covered by the GPL and Hellwig and the Conservancy do.

No, it started with BusyBox, but it's now mostly about the Linux kernel. The BusyBox issues are largely or completely resolved. As explained in the FAQ: "VMware made substantial and good efforts toward compliance on BusyBox. However, VMware still refused to fix a few minor and one major compliance problem that we discovered during the process. Namely, there was a major violation regarding Linux itself that ultimately became Christoph's key complaint in this lawsuit."

I wonder what the performance penalty would be for thunking to kernel space would on every such operation would be?

What's being discussed here is system call wrapping, and system calls by definition go to kernel space anyway. No extra thunk to kernel space is required.