That's the model that Baen is using with their free library, and it's apparently bearing fruit.
Personally, I downloaded an e-copy of HP7 (and 1-6 for that matter), I also pre-ordered the book back in February (have paper copies of 1-6 too, 3-7 are hardback), and I'd happily
purchase official e-versions if I could get 'em. So in my
case, the "piracy" certainly hasn't reduced sales any, the only thing that has done that is that they won't sell it to me in the format I want!
I know there are folks who won't buy the thing in any
format who are downloading it for free, but those folks aren't going to buy it no matter what, so they're not really "lost" sales, per se.
It seems to me (my opinion here) that there would be very few folks who download the book instead
of buying it who would
buy it if the bootleg e-book weren't
available, if that's actually so, then there can't be all that
many "lost" sales due to it.