I am sure that there are many people who read only free books. And they probably read free from books shared from friends and family.
I have bought 10x the number of books since I got my Sony reader than I ever did pbooks. I have purchased MANY books from authors after I read their free book. I have adored Lee Child after reading "The Persuader". And "The Alchemyst" Series? I Bought the rest of the series and waiting for The Necromancer to come out in 2010.
As a note, I most likely would NOT read free chapters. That would irritate the heck out of me to be at the end of the chapter, and have to wait to read the rest. BAH!
Fear not to the publishers and authors. I think the freebies are a most excellent marketing tool.