All right, a lot of people have commented about bad experiences with free transportation. I had a good one about free buses: I lived for a couple years in the north of France in Compiegne (where the ww2 armistice was signed). Buses were free, clean of homeless people, and very enjoyed by the student population. The line was not running at night, and Sundays and holidays the fare was 1 euro (pretty damn cheap).

Compiegne is also a fairly rich middle-sized town, so the cases are different, but it's just to give an example of a place where it was successfully implemented.