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Setting up a good website without paying for it is the whole focus of what I’ve been writing about here, and it works well for many different uses. Personal pages, blogs, and some small businesses are fine with a subdomain, and most other sites can use free hosting as long as there is a real dot com domain pointing to them. There are, however, a few exceptions to this rule. Here are 3 situations in which you should be using a reliable paid hosting plan:
You accept payment information
I’ll let you in on a well-known bit of knowledge: tech-savvy people don’t buy from sites that aren’t https://. That rules out your free host, which means that people will be rightfully afraid of giving out their personal information. Not only that, but you have no guarantee whatsoever from the host that what you are collecting will remain private and secure.
You store massive multimedia files or hotlinked images
If you haven’t been booted by your host for this by now, you should be. It’s a wonderful thing that the internet allows us to store and share high quality videos, but they belong somewhere like blip.tv. If you must have them on your site, or if you’re hosting content that will be hotlinked, you are abusing the hospitality and bandwidth that you are being offered.
You are running an MMORPG
Or any other hugely processor-intensive script for that matter. MMORPGs are great, but they also suck resources like nothing else, and people will start to notice the difference. I understand the temptation to run your own server, but it’s one that requires responsibility and carries with it certain expenses. Most hosts will not accommodate you anyway, and good luck trying to get that illegal Runescape server online.
… and one more thing
Before I end this post, I would like to make it clear that there are good paid hosts and bad ones, and that some paid hosts are actually worse than those that you can get without paying. So, even if you do end up spending the cash for a paid plan, be sure that you’re getting your money’s worth.
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One bit of advice...If you're looking to run a resource intensive service on your site like a tracker, YouTube-clone or perhaps a IRC daemon, you will need to look into VPS or Dedicated Server hosting.
Shared Server hosting (which is provided by most hosting companies) is not going to cut it and you'll quickly be kicked off or dropped by your host for abusing the resources alotted to you.
On a side note, if you want to securely accept payments online and don't have access to SSL on your hosting service, you can consider secure payment services such as Paypal or 2CO which handles the actual payment processing on their secure servers.
A paid host support is SO important even if you are a seasoned web developer, because they can manipulate things on the server that you do not have access to. 
I have to disagree with you about the topic of subdomains. I think it's best to try and get hold of a domain name whenever possible; they're dirt cheap. However, you sure are correct in saying that most people could make do with a free hosting plan. It shocks me how many people with basic, not very popular websites fork out on a dedicated server. Talk about hitting a walnut with a sledgehammer! 
Paid hosting is good, but most of the time requires you to have a credit card, therefore requiring you to be 18.
byetact - I hadn't thought of torrent trackers, but they are becoming much more common lately. As always, thanks for providing some additional advice here, it is important to remember that paid shared hosting has its limits, too.
Paypal is a good alternative to collecting the payment info yourself, although I believe it requires registration which might stop users who just want to enter a credit card number and be done with it.
Brian -That's very true. The support at all the free hosts I have tried has been very good, but with so many more users the staff can sometimes get overwhelmed.
Josh -Yep, domains are cheap, and if you pay for only one thing it should be the domain. That way you reinforce your branding and make sure when people type your name in they don't get to a competitor.
Over-ambitious hosting plans are something I see a lot both on free and paid hosts. People often seem to be looking for the largest number they can get with space and bandwidth, but ignore the things that will always matter like uptime and support for various other features. I put together the free webspace calculator for just this reason, although it hasn't really seen much use, and could use a rewrite.
Luis -That's a valid point, and probably the reason why so many teenagers can be seen on free hosting. Even if you have the money to pay for it, most parents probably aren't too thrilled about spending money on a website :).
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