Or perhaps not. I've spent hundreds on apps, and have yet to spend a single dollar in IAP.

Horses for courses... it all depends on what type of market your app caters to.

Agreed. I've upgraded from a free version to paid from within an app (MobileRSS) before, but I'm not an average iOS user.

I think marco's point about the free version creating a "bad neighborhood" around his paid app really nails it. If you're not generating appreciable traction from the free version, but are starting to develop a negative image and generating significant headaches as a result of it, it's probably a smart move to suspend the free version.