There’s an existing thread where this was discussed. However, apparently you’re wrong about free apps. From ars:
You can’t make a game free and later charge for levels or flaming swords or horse armor. Best you can do is make a game merely $.99 and then charge for add-ons.
Regardless though, If the F2P publishers aim their sights at the iPhone and charge for the initial download at 0.99 then they still have a great workable platform as they make their money from purchased content not from an initial purchase fee.
Some of these free games are pretty impressive too.