The "advertise our product" part is true, but I think that's just a good idea.
I don't really see much difference between "give us $99" and "we will only consider people who pay us $99 a month".
Edit: Here's what Jason has to say about it in the comments:
It’s no different than entering a design in a design annual or contest. You pay to be included, they publish a book, you get exposure. Thousands and thousands of design firms do this every year. They pay to be included in a promotional piece in the hopes that someone will see their work and consider them for a project.
I also liked the person that pointed out that only 86 people have to sign up or upgrade for 37signals to get their redesign for free.
Yeah nobody has to enter if they don't want, but isn't that the same argument people have used with spec work.
