Whoa, intense debate.
O'Reilly did a study on file sharing and its effects on ebook sales, unfortunately it's $99.00 USD. Has anyone read it?
Link:
http://oreilly.com/catalog/9780596157876/#top
There are lots of stories of free ebooks building momentum for an author, including the one about Paulo Coehlo getting caught by his publisher torrenting his own ebook. Sometimes it works, sometimes (in the wake of Chris Anderson's 'Free' debacle) it doesn't. I think when it works, it's largely due to the author's online participation. Building community, offering people something without just taking their money.
And I absolutely disagree with anyone saying artists should not get paid. I think people should have the chance to get paid for the work they do, to tell their stories and to suggest anything else is classist. Poor people cannot both write and work; art would become nothing more than leisure time for the elite. People need to eat.