Definition of "Freemium":
Short for "Free + Premium", it means: Online games that are given out by their developers for free, but are paid for by including premium in-game items bought with cash (microtransactions). A lot of MMO developers have been switching to it as subscription-based MMOs become increasingly unpopular. But is it really better? Let's start with some first naive impressions from several points of view.

First (naive) impression, from a free player's perspective:
This is awesome. Free, premium-grade online game and other players will pay for it.

First (naive) impression, from the perspective of a highly competitive player who's willing to spend a lot of money to remain competitive:
Subscription games have no "pay to win" options. Freemium = pay money instead of spending a lot of time getting geared.

First (naive) impression, from the perspective of someone who only has around 1-2 hours of free time per day:
$15 per month (*cough cough* WoW *cough cough*) is a waste if you can't log in much. Freemium doesn't punish players for not logging on. And it does help casual players gear up if they spend a bit of money on microtransactions.

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These impressions are fair enough for the naive.
From my perspective: years of experience and some insight show otherwise.

The fundamental problem with freemium/microtransactions:
Unlike a subscription game where everyone pays, a freemium game relies on a small part of its population (perhaps 10%) for the bulk of its income, with the vast majority refusing to pay anything. Most premium subscription-based MMOs are priced at around $10-$15 per month, therefore, to generate a similar amount of revenue, a freemium game has to be balanced around the highly competitive players spending $100-$150 per month. This is just plain bogus and overpriced. To convince players to spend that much, some freemium MMOs restrict access to various features, requiring payment. Another common practice is to make premium items vastly overpowered so anyone who refuses to pay has no chance versus someone who does pay. Some freemium MMOs include arbitrary in-game annoyances (for example, waiting times), that can be removed - with a microtransaction.

Freemium means that the vast majority of players are treated like crap:
Let's think like a business now. Suppose 1% of a freemium MMO's players pay $100-$150 per month in microtransactions, 10% pay $5-$10 a month for occasional microtransactions, and the remaining 89% never pay anything. Does it make sense to improve quality (content, game balance, timely patches and bugfixes, events) for the vast majority of players? No, because you are receiving no revenue from them. Therefore, a freemium game is almost certain to cater to the 1% of players spending $100+ a month, and perhaps to the 10% of players spending $5-$10 a month, but the remainder can forget about ever having their complaints and suggestions heard.
On the other hand, in a subscription-based MMO with no microtransactions, every player is as valuable as every other player. Each pays the same subscription fee, and each is treated (or should be treated) like a valued customer. Subscription gives the publisher/developer an incentive to treat everyone well.

Freemium gives publishers an incentive to squeeze as much money as they can out of their customers and then dump them just as quickly:
Running an MMO costs money, in case you haven't noticed. Every player logged in is consuming server resources, data storage resources, electricity, etc. With freemium microtransactions, once a player buys a premium item, there is no guarantee that they will keep paying - if the publisher/developer throws the player under the proverbial bus, nothing is lost.
In a subscription-based MMO, there is never any reason to dump players or run them out of the game, because that just means lost subscriptions and lost revenue.

Box Exclusives:
Arguably the scummiest freemium business practice (this is particularly widespread in Asian MMOs) is overpowered "box exclusives". A "premium box" usually costs a small amount of money (perhaps half a dollar) and has a small chance to contain an overpowered rare (or otherwise highly sought after) item. The rest of the time, it drops common garbage with little value. Often, box exclusives are time-limited, to push players into buying them. The result? Idiots spending $100,$150,$200+ to get a time-limited rare item, with many of them never getting the item.
Bottom line: 99% of Asian MMOs aren't worth your time or money.

It's spreading:
This is probably the worst result of the "freemium" revolution. It spreads beyond MMOs. There are plenty of "free" non-massively online games that have microtransactions. Some games for mobile devices that would have been completely offline 15 years ago now require registration and an Internet connection - for microtransactions. The result is likely to be an entire generation of inferior, low-quality, ruined, unimpressive games that no one will remember 10 years from now.

What do you think?

I've always preferred the subscription model. Paying a flat fee to get everything just seems like a better deal than having to pay for individual items, characters or abilities.

As we tend to get on these boards, this is yet another situation of "if you don't like it, don't play it/participate in it." You say that this is a naive impression, however in all of your points, those who are being wronged are part of the system. The game is FREE, regardless of the quality, so the developer isn't obligated to treat the consumer (who is playing the free model) in any way. If the free consumer doesn't like the way he's being treated, he can stop playing.

Frankly, one of the biggest reasons that people complain about freemium games is because they actually have the opportunity to play them. If a given freemium game actually required a monthly subscription where all content is available to the player (as opposed to a microtransaction), naturally, those people who play the game because it's free to play then wouldn't be playing it. However, because they can play the game without a monthly fee, they do, and then they complain when certain items are locked off. If you want to be treated like a paying customer, be a paying customer.

FTP games are flawed. Either you spend larger amounts of time getting geared or skilled up, or you spend cash (usually more than you want to overall) to get geared up.

Present me with a game that I have to pay for up front or monthly, and I will have a better gaming experience for less money overall. Time is Money.