I just say this great deal which gives you a free domain absolutely free. All you got to do is fill in ur details and submit it, and also you will have to have hotmail. The link for this offer is http://officelive.microsoft.com/ . Go there and get a free domain. Good luck.
Yeah the free service is definately going to have ads, which are probably going to increase a lot more after it releases. Even their office live pages have adverts... but as for the paid ones, I guess you're basically paying the domain fees.
Yeah, you are right the offer is only for US people right now, but you never know. When they were looking for beta testers for Windows Live Mail, I believe you had to be a resident of US only, but I did get an invite to join it. It might not matter that much, because they do say 'If you are selected as a beta participant' (or something like that anyways) you are going to get the product key... only time will tell.
I don't like these huge companies getting into the hosting business. I bet Google will make something similar.
Well, you're right, may be that's why Google created Google Pages? Although you don't get a free domain name and all that you still get free hosting. I think that Google Pages is mainly targeted for Geocities users, but only time will tell what Google is going to do next...