I have thought much about this since our lowest offer is $1.99 for domains along with a hosting or other package. Specifically I am referring to the former AOL package. Although they don’t offer domains for free any more, this is really the only free domain offer I really trusted to some extent, primarily because the domain company was AOL–a fairly trustworthy company.
So, they offered the domain which you could use to host a website, email, etc. However, it didn’t seem as if you could easily transfer service to another domain host. It seemed as if AOL would be the defacto owner of the domain and you were sort of renter of their service even though they didn’t charge anything.
Was it a scam? In AOL’s case, No, I don’t think so. However I could see several instances where true ownership of the domain would be far preferable to avoiding under 10 bucks a year that it costs to own a typical domain.
What if you wanted to sell the domain property? Since AOL really owns the domain, this would be impossible unless you could wrench it away from them.
What if the AOL hosting company didn’t offer you what you needed in terms of a web host? Again, you are locked in unless you could get them to point your A record somewhere else (for example, domaindjinn.com 
).
What if AOL stopped servicing your domain and let it lapse into the internet universe. Could you lose your name that you spent so much time developing?
This is not to say that AOL is a bad company at all. I like AOL, and use their services for many things. I actually am upset that the free Antivirus offer they used to make available is gone. But I am in the domain name business. And in my experience it is better to have the power than relinquish it to another party.
All in all, I feel that owning your own domain property is far superior to getting something for free. You get what you pay for after all. Since most domains are going for $8.75, it makes total sense to own it. Almost anyone can make $8.75 selling nearly anything, from slippers to books on making sand castles.
