Sorry to start a new thread on this topic but I thought this was pretty important.
Just off the phone with Apple.
Both the Penelope Rose Lite and HD Lite were rejected after the appeal.
After a very long conversation this is what I learned.
Books
There will be no more free/lite versions of the same book app unless…
The lite version has an inapp purchase to unlock(or download) the rest of the content.
If you do that, you can still have a paid and free version.(but honestly, what’s the point?)
Grant, not sure why Foodfight was approved but I wouldn’t expect the next one to be unless you add in-app to the lite.
The bigger issue is actually worse for me and other small interactive book developers…
At the point a developer gets 10 books done Apple will expect them to build a ‘Bookstore’ app that houses all of their books, which are then bought with in-app purchase.
I’ll spare you my feelings about this and just say this will make things very difficult.
Games
Games will be allowed to have free and lite versions as long as the lite version doesn’t directly link to the app store for an upgrade. Which IMO defeats the purpose. However, if you want to do a lite version then put a screen at the end that says ‘Check out the full version in iTunes’ you can. Just can’t link.
In regards to having a paid and lite+IAP version and what the point would be: Users who don’t have WiFi in their homes can still download and purchase apps through iTunes on their computer, but CANNOT purchase any IAP content. This means that you are basically required to have a standalone paid version if you’re going the lite+IAP route.
The link to the full version has been an on and off rule for a while now, so who knows if it’ll actually be enforced regularly. If you’re going lite+IAP, then it’ll matter less. The issue is, of course, if they start cracking down on it. It just means I won’t be updating my lite apps anytime soon. 
edit: There’s other stuff you mentioned that isn’t so savory either, but I just wanted to address these few things.
Why is there an issue in adding In App purchases?
Honestly I’m more inclined to upgrade if I can do so from within the game, and not have to drop out to the App Store. It makes for a more polished product, and if you do it right it’s very reusable for each and every product you make.
It is a bit odd they are requiring it, but from a marketting standpoint it seems like it’d be detrimental not to do it.
Edit: Ahh, Wifi issues that makes a bit more sense now. Although you can design a game to download it’s assets post-purchase, so your lite version is still more lightweight (although it has the entire code base still). Though to be honest that is a major design consideration if you want to go that route.
It is more work. Unity doesn’t have have built-in support for Storekit, so you have to roll your own or buy a plugin like the one from Prime31, and every plugin is something else that might hold you up on a future release. And then you need to add some GUI for the IAP option.
Also, it seems to me paid apps get better reviews and ratings - I’ve seen apps drop a star when they were made free. Having lite and paid apps is a way to sequester annoying reviewers who aren’t going to pay, anyway.
But it sounds like the safest way to go forward is to release free apps with ads (another plugin!) and IAP.
Edit: By the way, I believe when IAP was first introduced, Apple didn’t allow it in free apps. How things change!
Actually plugins like those from Prime31 have a tendency to exactly not hold you up cause you can remove them if they are causing trouble and even more so, they normally come with sources.
If “hold you up” is a problem, unity is the wrong tech right from the start as you are dependant on UT to update it if there are problems (as apples last minute fuckup on the 4.3.x SDKs that were not present till the release version), in such a case you would go with irrlicht or ogre and operate purely on sources
And yupp, IAP did only become available for free apps after major dev push and out of my view, after it became clear that MS is bringing over the XBox Live Arcade demo system to WP7 too