I have only used this service a few times, but I do think it is a great service for Amazon to offer. You can manually convert documents and move them to the Kindle for free, but the convenience factor with this service is very nice.
i am sure that people will complain about the price hike, and make all sorts of claims about how the service should be free and how poor of a job the service does with complex PDF files. In my mind though, this is a good idea. Amazon has got to be spending a ton of money on the Whispernet service with Sprint. One of the primary reasons I like the Kindle is Whispernet. My hope is that by raising the price on this service a little bit they can recoup some of the money they are spending on Whispernet and keep the wikipedia and experimental internet parts free.
I will also note that they have added support for RTF files as well as experimental support for DocX file (Word 2007).