Chris Brogan has a post about doing things for free and how you should charge for certain services.
Offering free services can definitely be tricky. Honestly, the only time you should do it is if it isn’t going to offer you headaches. Its ok that Twitter is free, each new user doesn’t require any additional work for Twitter (ok, a million additional users might cause the fail whale, but thats a different problem).
Providing free services when it requires time and labor, especially for a one person shop or a small business, can be an exercise in futility. If you are giving free classes to a whole bunch of people, great. One person vs 10 people in a class situation probably doesn’t matter.
From my own experience, when you offer something from free, clients the world. If you are doing pro bono work for a client, it is critical to clearly define what services you will be providing for free. At least if you don’t want your hair going white! Treat the client just like a paying client. If you have a development or process cycle, do it with the free clients as well.
Don’t sell yourself short.
