I've got a good domain,
http://Xbox360Modding.com, that I'm currently working on developing. Right now I'm trying to plan ahead and I need to know when it's the right time to start upgrading the back end of the site. By back end, I mean hosting. I don't want to have to wait until my host suspends me and my users desert me, so when is the proper time to upgrade to a vps?
If you notice that your members are starting to get annoyed with a free hosting service because the page load is bad or it doesn't respond half the time to their http requests to your site, or there's lots of downtime, then you'd want to upgrade immediately. I don't honestly see the difference in starting right away, but you can get away for a little while on a free host just to make sure that you're heading in a successful direction before you become dedicated to your site enough to buy upgrades for it. That's what I usually do, if I feel that I'm willing to commit to the site, and it looks like it could be a success, and is heading in a positive direction, I would just upgrade right away.
Half of the time when i've helped members out with their forums, it got to be a great success, but the hosting sucked, because they didn't have enough money to keep it up. So i'm a bit iffy on helping others out with their forum and becoming dedicated to it, and i'm sure that's the way most others are now as well.
If you are dedicated, you get good hosting, and I know myself and a few other people i'm sure would show the same dedication in return. I've helped another guy get his forum up to 2000+ members with good activity, around 700-1000 threads, it was looking promising, but I would have guessed it, and it's downfall was the lack of dedication to provide decent hosting for the site. The founder gave up, staff gave up, and pretty soon all of the dedicated members gave up too, and now it's not up anymore.
That's usually the trend, and when you start a site, you need to show that improvements are being made and that you are dedicated to the work put in. Upgrading is part of that, and members will follow. As soon as things start going downhill, it's hard to progress from there, which is why an admin or a webmasters job is never really finished.