Are Free Books the way forward or the beginning of the end?

mybook.to/lorddenver

FREE until Sunday

This month I'm introducing a contentious subject – that of giving away books for nothing in order to boost interest in books that are normally priced.
On another loop there has been vigorous discussion on the subject with several quite vehement that no one should ever give away their books for free.
The argument being that firstly a book has taken several months of a writer's life to produce and is therefore valuable. And secondly the more free books that are available the more readers will expect to get something for nothing. This will eventually lead to writers losing the majority of their income. This camp also think that Kindle Select is the same thing – that readers are getting books for nothing. Obviously this is untrue as it's just a subscription service like itunes or audible.
I disagree with that premise and will be interested to know into which camp you fall.
I only make books free that have already sold well but are no longer making any impact on readers. I have been putting up a free book every week this past month and have noticed a huge increase in page views and sales of other titles because of this.
Admittedly I've had a couple of emails from readers who couldn't get the link to work saying that they only download free books as they can't afford to buy. On balance I'd much prefer my free books to go to readers who then buy other titles, but as long as a reader enjoys what they read I'm happy with the exchange.
Whilst on the subject of pricing – how do you feel about books being sold permanently at less than what might be considered a reasonable amount?
Again I sell books at £0.99 that have already been sold in a box set or are several years old. My new books are always priced at what I consider the right amount – £1.99. I believe that it's better to sell thousands of books at a cheaper price than a handful at what might be considered the right price.
Sales are falling for many indie-writers as there are thousands of good books being published every month and  our share of the market is therefore smaller. More books but static pool of readers.
Am I and others like me ruining things for all writers by giving away our books and pricing them under a pound?
Let me know your views.
Fenella J Miller