It is ervah b’etzem, but that’s a chiddush and needs a passuk. For krias Shema, which is talui in hirhurim, the fact that it is a common sight is a mitigating factor.*
How can you ignore the fact that R’ Moshe writes that the chiddush of sa’ar is that it is like basar, and still insist that basar is not d’Oraisa?
*It is worth noting that the Chofetz Chaim very strongly condemns saying berachos in front of uncovered hair. He does not hold of the Aruch Hashulchan’s heter.