There was abundance of good Android applications on Android Market from the very beginning, when it was free. Then, paid applications showed up, and "Pro" and "Donate" apps started appearing.
Then, developers realized that the fact that there's been 250k downloads for the free app doesn't necessarily mean that there will be at least 10k downloads for the paid app, you're lucky if you get 10 - sometimes it's the user's greed, sometimes it's just the fact that the app is good enough as free, but doesn't withstand any criticism as paid, and paying for it is mostly a honor of recognition thing.
Then, the developers got greedy and started silently removing features from free applications and offering them only with paid versions thereof. Take into account the fact that you can't downgrade the application on Android (and I suspect that you can't even hold upgrading, Market does it for you automatically if you keep ignoring the notification long enough).
My prediction is that it's going to backfire, this way or that.
Yes, I know that it sucks that people are willing to take your work for free, but don't want to pay (I am a software engineer as well, remember?).
However, whereas more expensive objects' acquisition is decided upon the price and the merits, the price here is so low, it's immaterial in comparison with impression. And if you're pulling features out of your free stuff - not only you're not allowing new Android Market users to see the benefits of it, you're also creating the impression of racket. You're betraying my trust into you, and taking away what you already gave me.
You are not irreplaceable. Even if I was considering making a donation worth a few minutes of my time (longer to process the transaction than to earn it), I'm not considering it anymore. There will be others that will fill the gap created by you, and they will do it better than you and possibly cheaper than you, for they'll learn on your mistakes.
Play nice, will ya?