I think most groups are (or are going to be) relatively small, 2-4 people maximum in most cases...unlikely that they'll want to pay for webspace when they could easily get a free wordpress site. I know that I would be hesitant to pay for a hosted site here when I could get a free hosted site elsewhere. If I had to spend money, I'd invest it in my own domain name...otherwise I'd go the free route.
I think the sites should be offered for free, and then add extra perks for those who pay (a premium service). Perhaps a basic site would be just a wordpress blog, and then premium would allow ftp access and a gallery? Something like that. I think people would be a lot more likely to join up if they can get a free taste beforehand.
This might be what you're suggesting, Whilyam - groups who pay for the premium service would get a domain name to go with their site (a subdomain or maybe even a full one)? For basic accounts, we could just use guildofwriters.com/projects.php?project=projectname or something equally annoying to type out that would make people more willing to pay for premium...or is that too devious?