Paid and Free App.

New to development on the iphone and am currently developing one but am struggling with the best way to put it into itunes.
One option is that I have it as free app and have the 'in-app purchase' capability that would allow users to purchase the full version within the app itself.
Otherwise to have 2 separate applications - one free and one paid.
What experiences with these options have people found?
Have users downloaded the free app first then 100% moved to purchase the paid one?
Trying to understand what model would produce the best conversion rate.

Why not do both? A free version that offers in-app "full version" and an outright full version that can be purchased immediately.