I can offer you our experience August of '06....free dinind began on 8/13 and we arrived 8/11. Stayed at POP

first 3 nights, Polynesian

remaining 7 nights. When we arrived on the 11th , the parks were not "empty" by any means, but just right...enough people to have all the carts open, characters around...perfect level of activity, maybe 15 minute waits for things, 25 tops for the biggies like TT or SM...certainly do-able, stress-free, we were having a loveley time, busses not bad from POP, maybe had to wait for 2nd one leaviing in the a.m. for MK, everything else fine. Then, on the 13th...the floodgates opened.

When we arrived at POP we had 3 people in line ahead of us for check-in, we had used DME, everything was smooth as could be. We went to the food ourt the morning of the 13th and we could see the masses lined up for check-in already ay at 8 a.m.! Now I know many folks arrived on the 12th, and then were re-checking in on the 13th under the
free dining offer, but this was nuts. I also know the the Value resorts we the best economical savings under free dining, so I thought, well sure, it's crowded here, but maybe the Mods/Deluxes aren't as bad....WRONG! We went to MGM on the 13th ( mostly based on our ADR at Sci-Fi) and the place was mobbed. I think we noticed it since we had had such low crowds the 2 days prior. When we returned to Pop at about 9 pm still on the 13th...the line for check-in was STILL huge. I asked a CM if it had been like that all day, and he said the resort holds over 2,000....and they had over 1,100 check in that day alone....

....
Now, the parks are well equiped to handle crowds, but AK and EE being so popular, you had to have a FP by 10 a.m or you were out of luck for the remainder of the day. We have been to WDW 5 times and with the awesome guidance of these boards have not planned our trips without knowledge. Yes, we winged some areas of the trip, but had to make some adjustments on timing to be able to keep our ADR's and allow ample ( 90 minutes) to get to where we were going to eat. We experienced the monorails backing up using 25 extra minutes of time, but not a problem overall daily, but it did happen twice...busses will be more crowded...
In a nut shell, I think you will have crowds, but not to the level of the first 2 weeks of free dining. Once school starts and Labor Day are past, then it will be sweet during free dining. If we were able to go again, I would have booked the week PRIOR to free dining just as you did...we enjoyed some great restaurants that we would never have gone to...free dining allowed us to enjoy both a deluxe resort and deluxe food at the same time...something we have never done before, and it was wonderful...however we did have to schedule ourselves around the ADR's as there was NOTHING availabel for those who did not thave them...EVERY place we were eating at was turning folks away, it was so hard to watch day after day...and the CS places were mobbed. We left on the 21st, so things may have dropped off after that, but all the CM's we talked to had said the 2 weeks PRIOR to Free dining were "dead"...that not everything ( carts, street entertainment etc.) was even needed to be open. Now I like having enough folks to have the place hopping, I like the action, so maybe I am not the best judge...but the fact that I thought it was mobbed and would not go during Free dining again is pretty significant in my kids eyes.
I hope your strategy works in your favor, please post when you get back as we would like to plan a "pre-dining" trip next summer to celebrate our kids graduating H.S and Middle school...no $ after that...college you know! Anyway, have an awesome time, we still enjoyed the heck out of ourselves and would have rather been than not been...we had 10 day tix and used them all up...I thought we would have a day or 2 left, but ended up using them as the crowds did alter us a bit.
Have a blast!
Pam