Yes! Previously limited to premium apps, in-app content purchase is now open to free iPhone applications. The Freemium model is now feasible on the iPhone! The following email just went out to developers:
In App Purchase is being rapidly adopted by developers in their paid apps. Now you can use In App Purchase in your free apps to sell content, subscriptions, and digital services.
You can also simplify your development by creating a single version of your app that uses In App Purchase to unlock additional functionality, eliminating the need to create Lite versions of your app. Using In App Purchase in your app can also help combat some of the problems of software piracy by allowing you to verify In App Purchases.
Visit the App Store Resource Center for more details about how you can add In App Purchases to your free apps.
This is an absolutely tremendous day for iPhone developers. This is a reversal of policy for Apple; when the In-App purchase system was initially launched, Apple openly said that they wanted free apps to always be completely free. This dashed the hopes and dreams of many developers, who were banking on the idea of selling expansion packs and additional content after hooking the player with free content.