Unless you have the money to invest in staff to monitor your free services 24/7/365, don't bother.

Seriously, offering free hosting is not a bad thing, if it's something you can police fairly well.

Not very very long ago, our company used to offer a free hosting alternative to our premium hosting services, and almost every member found a way to abuse it....

porn, warez, video, mp3's, cracks, etc

Basically, if it was listed as a "no no" in the Free service TOS, they threw it up there, until the server itself said "wtf were you thinking!!?", and started running real slow, etc, until we eventually had to give the server a flu shot, and the free members the boot.