We've gone a couple times during free dining. Twice we took advantage, once we didn't. I do think the crowds are heavier than they were, not because of free dining but because America is now cheap. It's much easier for people from other countries to visit here & it is too expensive for us to travel abroad. So we all show up at Disney.
I was at Disney last year this week and the only time I remember truly being irritated by the crowds was at Spectro/Wishes. It's just so crazy then. But that is because of the Christmas party, not free dining. The dining didn't seem so bad. And we also went in Sept of last year and had free dining (we upgraded to Deluxe.) We didn't decide on that trip until much later so some TS's were already booked up. Even still we ate at: San Angel (seated immediately, excellent service & food), Jiko (AMAZING), Flying Fish (AMAZING), Artist's Point (AMAZING), Boma (seated 5-10 minutes, good service, good food.)
In 2007 we went and there were VERY few crowds. We did have time to make ressies, though still not the day they opened. We did Le Cellier, San Angel, O'hana's, Whispering Canyon, Chef Mickey's, Crystal Palace, Nine Dragons, Tony's. I don't remember really having to wait for any of them. And I also remember several times feeling like I had Disney World all to myself.
Sometimes I feel like the expectations on the Dis as far as crowds go are a bit off. I mean, go to Niagra Falls, the Smithsonian, Time Square, etc. Tourist areas have tourists. Always. I have been to Niagra Falls during an ice storm. It wasn't so bad then. Of course it was so cold we could only stand to look at it for about a minute.
I'm just saying Disney World is a tourist trap. And tourist traps have tourists. Even during off season & shoulder season.
As for dining, if you go to Outback steakhouse at 6:00 p.m. on a Saturday you are going to have to wait for an hour +. At Disney World, if you are flexible, you can call in the morning day of (yes, even during free dining) and say, "What do you have for tonight?" And they will give you several options. No, it will not be Le Cellier at 6:00 p.m. But it will still be someplace nice at 5:00 or 7:00.
I'm sure this is the case in Vegas too. We tried to get tickets to a show day of when we were in Vegas and had limited choices of $200.00 per ticket box seats at the real shows or stupid little shows. And for dinner we could not get into the famous chef's eateries. Did we enjoy our stupid little show & our no name Irish pub? You betcha!
Anyway, my advice is: if you can think of a better time to go when it will be a ghost town, go for it. But don't be disappointed if the crowds are still there or if it's below freezing (I went one year in January and it was DEAD but we had to wear scarves, gloves, and a heavy winter coat and were still freezing.) If you can't think of better time, go during free dining, be open to restaurant choices, and get to the parks 15 minutes before they open. You'll have a great time.
I made my reservations back in January for Nov. 29-Dec 5, the same week we have always gone every other year since 1995. I have noticed an increase every year since about 1999 crowdwise, but it's still been ok. But now, free dining!! I have never experienced free dining, & not sure I want to. If my one & only vacation I get per year will be miserable, why go? I LOVE disney, & hate to think of canceling, but I don't want my family hating the place if it will be unbearable. HELP! What would you do? 
), so didn't want to have to add extra misery. Thans again, everyone!
? This October will be our 4th free dining visit and I'm sure it will be as awesome as the previous 3 years.
