If LoL doesn't make money for Riot, the developers don't get to eat. So yeah, I'm not surprised they went with a F2P model with a little bit of pay-to-win in there, and their variation on it (rotating characters and you pay to keep the ones you liked) is a novel and fair approach to it.
http://allthingsd.com/20110204/chinas-tencent-buys-riot-game...
That remains to be seen. Do we even know if HoN is profitable? My impression is that League of Legends is the only MOBA to turn a profit so far, but I could be mistaken. Based on how drastically they've altered the game and the changing business models, I certainly didn't get the impression that S2 was satisfied with HoN's returns.
Of course not, they are free to employ whichever model they want. I think his reply was more directed at the statement: "I think League of Legends or maybe Team Fortress 2 are about as good as it gets..."
LoL is somewhere in the middle of the spectrum of "purely cosmetic" and "pay to win" while Dota 2 is on the "purely cosmetic" end. So in the category of Dota-like games, Dota 2 is perhaps as good at it gets, in terms of its free-to-play model.
My guess is that Riot simply didn't bother changing the model they went for in the first place for LoL, but I think Dota 2 has proved to be a great business model for Valve.
I'll be fair, I haven't seen any numbers from Valve, but if you pay any attention to the selling and trading of TF2 and Dota 2 items on Steam and many other places, you'd notice that people are outright making a living out of the whole Steam ecosystem.