Hi Miles - what an excellent question!
Blogs and web sites can look much the same to the untrained person. And most readers don't care if you have a blog or a web site.
Both have pages. Both can be used as the basis for making money.
Until recently, many blogging platforms very nearly completely ignored the importance of keywords (some had tagging capabilities, which work slightly differently than meta tags).
In fact, I read recently that only the most recent version of WordPress has offered the ability to tag individual posts. This feature is really important if you want search engines to find posts (you do).
Another feature of blogging is that RSS is built in to most blogging platforms. Until recently, many web sites didn't offer RSS.
[Warning: Blatant SBI love shout ahead]
SBI sites offer the best of both worlds - a kind of hybrid. You can "site blog" (RSS feature is offered for each new page you create - including "pinging" every new page that you publish). Site blogging allows you to show new pages as blog posts (search engines currently find these faster). Then, after the blog posting is stale, the listing roles to your actual site page.
Imagine having a feature (no need to imagine!) that uses the time-sensitive publishing of blogging that super-accelerates the indexing of your web site pages!! Wow. SBI does that.
I guess in some ways blogs seem fresh and cool. A lot are. People like the "nowness" of the content (which you have to keep up with to keep your readers' attention!) and the fact that you can have a dialogue (using comments). Blogs also naturally promote link sharing and networking.
SBI is currently (but not for much longer) not offering a full blogging capability. However a new module is coming in the next few (months? weeks? I'm holding my breath in anticipation) that will allow integration of a blog (like Blogger or Typepad) with your SBI site. Now - this may not seem earth shattering - but I'm totally jazzed.
Here's why: my site is nearing 200 pages. It is nearly 2 years old. Search engines like stability and depth like that. They also like regular posts. I blog nearly every day at my new blog. I get brownie points (well, really google-points like good page rank and good search engine visibility) for new material and longevity and links to my site (they all work like this, SBI or not). Adding a blog will create a new way for visitors to find my site. My blog is also linked from many pages of my site. Good for links. Good for page rank. Good for traffic!
In the end, blogging is just another way to let people find you. It's another way to put your message/product/service out to the world. I use both to maximize my exposure. Oh, and the other reason is that I like to play and learn about both - so I'm having fun too.
I guess there are other reasons for blogging vs building a site (and strong reasons for both). I'm reading some cool books right now on blogging - Robert Scoble, JD Frazer, Andy Wibbels - and each one so far has pointed out to me that blogging really is just a different interface for creating a content web site with a few more bells and whistles thrown in.
Now about that free thing...
RSS and a new blog are all very well and good, but you still have to let the world know you're there. Blogging with a free platform you may get some help from fellow bloggers - but likely you'll need to work at getting traffic from others by actively seeking links (just as you do with any site you pay for as well.)
Here's the exception (applies to sites and well as blogs): if you are offering a product, service or information that is inherently viral (ie - people will spread the word for you), in some ways it doesn't matter what platform you use online. If you have something really good (Facebook, MySpace) you can "build it and they will come".
How many times in a million ideas does this happen?
Most of us here are building smaller empires (who knows how big they might get?) that may or may not go viral (in varying degrees within our own niches.)
My arguement for "free" or "paid" service remains the same -
1- whoever pays the piper calls the tune
2- you get what you pay for
3- with a business, what you OWN and CONTROL is your greatest asset (think about this in terms of what your domain name looks like, what ads appear on your pages - and do you control them - among other things.