It's been a while, and there's been a lot of confusion surrounding this topic of "5 free apps", so here's the final low down:
So let's walk through a scenario
A (for "awesome" which seems to be my word of the last couple of months) signs up for the marketplace, pays his $99 (or equivalent in local currency) and gets approved. He then submits "A's Awesome Paid App" which fails submission. He fixes the problems, resubmits and the app is published. Based on feedback he submits 4 subsequent updates. Up to this point A has paid no extra fees.
A then decides to become philanthropic and submits a free application. The application fails submission - and now A is only left with 4 free submissions. A resubmits and the submission goes through, at which point he starts submitting updates, and has 3 submissions left. No matter how many updates A pushes, they will still have 3 submissions remaining.