The debate about giving away work for free flares up annually on every writer's list I belong to. A reasonable position is that with so much free stuff out there, it's hard to get people to pay for stories, so none of us should give any story away for free. The other side of the argument is the belief that exposure and publication credits have value, so writers who do give away free work get paid in other ways than cash.
I'm solidly in the middle on this one.
Most of the free stuff out there is worth what the reader pays for it. A lot of dreck is floating around the internet. Many people think that they can write, but few can write well. Some readers are content with the dreck. Some readers can't tell the dreck from the sublime. Some prefer the dreck. They aren't my audience, so I don't worry about them.
There are free sites with well-earned reputations for posting quality work. The Erotica Readers and Writer's Association and Velvet Mafia are great examples. Clean Sheets recently began paying for stories, but I'll include them in this group. Having a story on these sites is good exposure to the kind of reader I want. Quality site = quality audience. I'm proud to say I have stories on Clean Sheets. ERWA is the world's best community of writers, and when they ask for a story of mine, I'm thrilled to contribute. (Still working on VM. One of these days, the stars will align between VMs chosen theme and one of my stories, and I will finally have something worthy of submission.)
If a site charges to read my story, I damn well expect payment too. For some reason, there are sites that expect to get content for free but make a business out of distributing it. I don't make a living off my writing, but I expect recognition that what I produce has value. It truly pisses me off when they dare tell me that they pay in exposure. I can expose myself, thank you.
Many people want to write, and some are desperate to be published, so it's impossible to stop the flow of free stories. As long as there are free stories, it's going to be harder for writers to convince people to buy works. On the other hand, I believe that there are people who recognize that true talent is a rare thing in this world and it deserves to be rewarded. But I also doubt that they'll be looking for gems in the dungheap. So choose your markets carefully, and consider what you're getting in return if you decide to give away your work for free.
Then do what you want. It's your path, not mine.