My experience shows that it's not true. It depends on how much people are devoted to your site/service/product. We at gtalk2voip.com turned 30% of our free services into paid for because we could not support more unpaid traffic. The result was not as bad as we expected: 1/10 users converted and paid for the services they previously used for free. Yet we received a lot many complaines and even threats. Of course you will be regarded as doing unfair and evil business, but as someone said: "no evil - no business". To soften the situation we kindly explained in every email why we were enforced to start charging for free services.

The overall results are: 1. Not so good publicity, we are no longer treaded as "cool service". 2. Increase in revenue. 3. Significant reduction in traffic and CPU load, hence save on expenses.