Actually I don't agree with this either. Giving a product away for free isn't a bad thing if there is a strategy behind it. - TOTALLY Agree.

The Strategy I would suggest is having a contingent plan or a secondary system in the background which will earn you money. It could be something connected to hosting or totally not connected.

Example:

Yahoo offers Free Email Storage.
ON the Other side they earn from ads.

OR

Company X offers Free WebHosting
Company X also deals in some other non related business where they earn lots of money and use some of it to offer free webhosting .

Nothing wrong with it as long as youre earning some sort of return (wheter its money or trust or value or brand).

Regards