This freemium approach is exactly the one I've chosen for my own iOS app Mindscope - if Apple would finally get their act together and natively support trial versions of apps, I would change to that in a heartbeat.

Until then, I offer an ad-free, functional app for free but then charge to unlock the complete functionality. It's worked quite well for me so far (but obviously nowhere near five figures a month) seeing as how about 15% of downloaders end up unlocking the full functionality which I think is a pretty good number.