The biggest advantage for free hosted blog over own domain is that it can be set up within minutes and used for temporary projects.
For example look how many of our SEOcontest2008 participants are using free blogs.
2 month from now most of these blogs will be abandoned with no hard feelings but if it was your own domain you would probably think twice before dropping it.
From the promotional point of view there is not a big difference since most visitors are coming in from links pointing to your site and not direct type-ins...
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