The free software movement, the GNU project or the FSF do not aim at "better software through peer review". They (we) aim at people's freedom, and better software is just a side effect [1].
On the other hand, the open source movement (no capitals for lazy typing) aims at better software for everyone through peer review; people's freedom is a side effect.
I would also like to add that the OS movement do not always guarantee the software will have such freedom in the future, so although the GPL is an OS licence, the inverse is not the case. I would regard Open-Source as as a 'jam today' attitude: it's like saying "we're okay" with no thought for what happens in the future. I would also very much encourage anyone to not use the term "open source", and I would be extremely discouraged if the FSFE decided to use such a term - if so, there's no point calling the organisation "Free Software Foundation". While I agree with this explanation of the differences, I would say also it runs much deeper, and is *definitely* a practical as well as theoretical difference.
I have to comment on this excellent explanation and say that in my opinion an important point should be adressed by the FSF Europe, taking advantage of our multi-lingual nature (vs the american FSF) :
This way, the french people involved in the FSFE effort should propagate the "logiciel libre" (or libre logiciel) term, which explains clearly that freedom what it's all about.
Is this actually the case? I do hope so, although my French is not sufficiently good to recognise it ;)) To me, "logiciel libre" could also have other implications - to an Englishmen's ears something like that has a more similar meaning to something such as "animaux libre" (help! the chickens have escaped!!), etc. ;)) It sounds like the software has escaped and is running around ;)) But as I said, that's probably my poor French!!
I would suggest others to do the same in their languages... unfortunately, UK (ang germans afaik) don't have such a word to use, ... but in this case, why not use "Libre software"... as we did for the Libre Software Meeting, last year in Bordeaux (with RMS approval on that term, btw ;) : http://lsm.abul.org/ ?
In terms of English, I think we have to make do with our bad lot. Although "Libre Software" is meaningful to people such as you or I, I think to the average anglophile it would take as much explaining as "Free Software", although possibly with benefit of not giving an erroneous first-impression. I think once people get used to the term, it will not be so bad - for example, when computers first started being really used in a widespread manner, people had trouble understanding what the computers were showing - apparantly, they all had "programmes". Of course, later, people came to understand they were running programs rather than showing programmes, and now "programs" is understood by most people as "things computers run". Language is extremely flexible, remember, and is defined not by dictionaries, or Universities, but by the people who speak it.
Cheers,
Alex.