Considering SteamOS includes Valve's proprietary bits for the Steam client, this likely still applies to Valve and any hardware shipping with SteamOS

Where is the line? Most Linux distros have some nonfree software too, does it apply to them?

IMHO the correct legal and constitutional analysis ought to be: distributing software, in either source or binary form, is free speech protected under the US constitution as well as state constitutions. Therefore the government cannot pass laws requiring that operating systems, in general, implement certain features, doesn't matter which.

What the government can do is engage in product regulation. It can require that operating systems preinstalled on devices sold in their jurisdiction have certain features. The correct thing to do wouldn't have been to distinguish FOSS from nonfree operating systems, but operating systems preinstalled on devices from those distributed on the Internet which the user needs to install. That would have covered Android, iOS, macOS and Windows, which is obviously what the legislators were thinking of.