Maybe they decided it's better to "free" Vista, as you put it, than lose customers. I imagine not too many of the corporate users were happy when WGA decided their copies of Vista were "pirated" (even though they weren't) and shut itself down. People don't really like it when something they paid for stops working, and they usually tend to avoid it in the future.

While I don't run Vista, I'm curious to know if SP1 fixes The Long Goodbye.