No, free doesn't make it better... just like "paying" for something doesn't make it better either...
The matter is this, and coming from that I own/use both... Sony has brought to the table MORE than what people expected... In fact, so much that it has chisled away alot of "you get what you pay for motto" that XBL carries... and in the coming march when they update everything and you get live video talk, during games even, they'll be raising another flag to MS... They're whittling away at the features that XBL brings to you, and you know the ones they don't, or, need polishing, they're going to be working on it... We've got a lot of updates already, and look no further to the PSP to see how it's a comparision to how often we'll be getting updates...
My problem with XBL now is this... I've never seen so much lag before on XBL on the original xbox... now, it's everywhere... even their big-name titles such as Gears has lag more oft than not... The voice chat is not as clear as it used to be, you get those black-outs where you can't hear certain people, while others can't hear you... Yeah, it's great that there's so many ways to socialize on there, talk to others while they're doing something else... leave them a voice mail... etc... but they're overlooking the KEY element to online gaming, and that's the gaming part itself... The lag is getting rediculous anymore... And that's the #1 reason for online gaming, playing the game... You can say you're having fun socializing with people on there so who cares about the gaming element, but you can socialize with people on the net, phone, or better yet, in person... Yeah, I love chatting, WHILE I'm gaming though...
Also, just because MS lays the ground work down for Online, doesn't mean the devs instantly created a flawless online experience... Saint's Row online, for one example, was utter-trash when I played it last... It's been a while, so maybe they fixed it, I dunno... but when I played it, it was trash, you couldn't talk most of the time, lag was rediculous...
Personally, I paid for the year of XBL, but it's not THAT much of a step ahead in quality that people automatically assume it is in comparision to Sony's service... Yes, like I said, there's still a couple more features to XBL, but the quality just isn't necessarily there to justify the money...