IS MMD open source/public domain/a thing where "stealing" doesn't mean shit because there's a price tag of 0 dollars?
It's not. Since most people here seem unfamiliar with MMD I'll unleash my autism over it because I think it does provide context on why some people care about 'CRWBY stealing assets'.
MMD is a closed source freeware program that only comes with a few base models, therefore its users took it upon themselves to make their own that didn't look like garbage. These models belong to whatever artist made them, not the creator of MMD or some company. It's basically doujin software and the majority of them are some random artist's unpaid work. A bit like your average video game's modding community except with the mindset of artists, not open source coders. Japanese modelers pump out professional-grade shit for this program so it's understandable they have such strict policies that
usually forbid commercial use, frankensteining the assets, etc. The model RWBY rips as a base for most of its female characters is from an artist known as Tda.
His permissions are easy enough to find and understand, but basically RWBY really
doesn't have permission to use his assets, especially not since they made a whole show out of his (and others') work. But RWBY will never see consequences for it because each individual artist obviously doesn't have the time or resources to chase them down.
Personally I think it's understandable, albeit morally grey, that Monty took those assets to create early RWBY as the webshow it was but if anyone is actually mad about it, it's way too late to do anything about it now. Monty must've known what he was doing as an indie animator himself and a turbo-weeb to go looking for assets in such a corner of the internet but the man's dead now anyway and I doubt RT knew where he got these models, they probably thought he made it from scratch for being such a genius.