If you want banking apps to work, you're fucked. Even getting some of the mainstream social network and chat apps to work without google play services is a pain.
GrapheneOS seems to do pretty well with this. It is a bit more involved and you have to check the docs but you can generally get banking apps to work just fine.
Maybe we need some more economic conflicts, for huawei and xiaomi to switch to their own "play services", and the developers will have to code apps that work on all android variants, not just google-based ones.
There's not a single phone on earth running AOSP, you can't really compare it to Ubuntu. It's not made for tinkering or user ownership.
Sure there are: https://developer.android.com/topic/generic-system-image/
The only project I know about doing that is Replicant and targets ancient phones. It's also a community run project, none of those phone came fully open from the factory either.
I think (guessing) the main thing an OSS advocate might take issue with is that decisions are made by corporate bodies that might not benefit end-users in every case. For example, the aforementioned Termux issue and how Google recently deprecated the open source Messages and Dialler apps on Android, with vendors like Samsung giving proprietary alternatives.
That seems to me to be an issue with some other open source projects too (people complain about GNOME for example not listening to its users) but it possibly happens there on a lower scale since Android's a bigger project (likely most people in the world have seen or held or used an Android phone once in their lives).
The kernel modifications are all GPL-licensed and the userland is Apache. Android is pure OSS, it's distributions are not.
I'm not sure how difficult it is to keep an OS going. What upgrades have I needed in the last 6 years? Security sure, but outside some phone system upgrades and messaging, I'm not sure what we even need to upgrade at this point.