I've been doing lite/paid versions since the market first accepted paid apps and it's worked well. The downside is that the people who go paid then uninstall the lite, which presumably hurts its ranking. You could try getting around that by implementing an unlocker app as the paid version so the user has to retain both in order to get the full benefits. The downside to that might be reduced ratings/reviews for the paid unlocker, which could hurt its ranking.
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