Instapaper has little need for a free app because it's so unique; there are few paid alternatives, let alone free ones. If you're building something less extraordinary, offering a free app with an in-app upgrade path makes more sense.
The free-to-pro transition seems to work better with a single app using in app purchases (to remove ads and unlock features) than with two separate apps.
It's possible to structure the experience in a free app to make the upgrade more compelling too. Thermo and Astronut (both for iPhone) are two examples that handle it well in different ways: Astronut (game) presents an upgrade option when you reach the end of the first stage; Thermo (temperature widget) shows an ad at the bottom with a tempting X button -- when you tap that, you're prompted to upgrade.
The free-to-pro transition seems to work better with a single app using in app purchases (to remove ads and unlock features) than with two separate apps.
It's possible to structure the experience in a free app to make the upgrade more compelling too. Thermo and Astronut (both for iPhone) are two examples that handle it well in different ways: Astronut (game) presents an upgrade option when you reach the end of the first stage; Thermo (temperature widget) shows an ad at the bottom with a tempting X button -- when you tap that, you're prompted to upgrade.