I think that only occurs when you don't already have something. Plus, your example is a singleton and unfortunately anecdotal.
If you're planning on purchasing something, the one that has free things that come with it often do very well.
Maybe my example isn't much better, but we basically have 3 top brands of beer at a liquor store I used to work at. The one that had the free giveaway was always the best seller, because it's getting more for your money.
People ARE leery of free, but the "free" in this case required a previous purchase, so people see it as more bang for the buck. People love free online games, and I'd wager games like Starcraft, Counterstrike, Diablo 1 & 2 have done a lot better than the MMO games. In fact, Guild Wars was released with a free online mode (and it's an MMO) because ArenaNet and NCSoft felt it could be more profitable to sell units rather than make money on subscriptions.
Free stuff WITH something else is an excellent marketting program. And as long as increased sales cover the cost of the free goodies, it pays off in the long run.