1. Create a few good paid apps
2. ????
3. Get enough passive income that you'll no longer need to work
How is merely creating a good app and charging money for it a solid plan for making more than a few bucks? Unless my understanding of the software industry is very far off the mark, the app has to target a good market, fit that market well, be sold effectively to that market and have a good support system in place that works without you participating — and if you're missing one element, the others have to be hit a lot stronger. Am I wrong in your experience?
Contrariwise, free software has no barrier to entry at all. Just being free is a marketing campaign in itself. You're much more likely to get wide adoption with free software, so if you don't feel capable of marketing and supporting a product, it at least is good advertising for your skills.
Why do you assume that it's easier to get wide adoption of a product if it's free, but not if it has a price tag?
If you want your free thing to take off, you still need to market it and do all the other things you describe. The barrier to entry is almost exactly the same, except that with a paid product you need to figure out a way to accept payments.
I assume it's easier because most people's experience has shown that it's far easier to get people to take something for free than to part with even a dollar for it.
For a real-world example, free app downloads on the iPhone positively dominate paid apps — that's why they have separate "Top Downloaded" lists.
I don't mean to be disagreeable, but my experience really doesn't bear that out. People want a Web browser, but selling one is a loser's game — even Opera has given up. Ditto for word processors and media players.
Your second point is exactly what I was getting at — what you need for a successful product is product-marketing and SEO skills. But that's totally orthogonal to making good software and charging money for it.
Contrariwise, free software has no barrier to entry at all. Just being free is a marketing campaign in itself. You're much more likely to get wide adoption with free software, so if you don't feel capable of marketing and supporting a product, it at least is good advertising for your skills.