Marco Arment in episode 5 of the Build and Analyze podcast (starting at minute 18:40):

One reason why it’s so great to sell an app on the iTunes Store is because the payment process for the user is one easy step. All they have to do is type their password, that’s it. And critically, it’s the exact same process whether the app is free or paid. […]

Normally, in the real world of desktop software or other things, taking something for free or paying for something has a difference in effort. And so, when a person is trying to weigh, “Should I buy this or should I take this free thing?”, not only do they have to weigh the monetary cost, but they also have to think about the effort. “Is this really worth the hassle of typing in all my payment information or logging in to Paypal or all this other stuff?”

In the App Store, that dialog in their head doesn’t happen. Because it’s the same amout of effort whether it’s free or paid.

As a user, I am always a little annoyed that Apple requires my password even for free downloads (and free updates). As a seller on the App Store, I agree with Marco’s point.