Nobody knows yet, but my guess is that it will NOT be free, just like previous iLife and iWork updates. Some rumors even place it bundled with Leopard. We'll just have to wait and see, I suppose.
Definitely, I'd like to see iWork included too, if it had OpenXML support and a spreadsheet I could see that happening (unless they wanna be best buddies with MS.)
I wish they'd offer iLife a la carte. I use almost all of iLife, but my wife only uses iPhoto. I bet they could sell each app for $20 or so and still have great all around sales.