The problem with charging from day 1 is that the entry cost on the Internet is so low. That means that even if I make a great product and start charging for it

The problem with charging from day 1 is that the entry cost on the Internet is so low. That means that even if I make a great product and start charging for it, someone else can easily make a copy-cat product and make it free. The logic behind charging in version 2 or 3 is simply that by that time there will be a loyal customer base that would not be as easily swayed by a free copy-cat product. This has nothing to do with being a "sell-out" in the startup community, it's just about being an aware entrepreneur.