I just set up a copy of WordPress Multiuser, running at calgaryblogs.net. It's an open and free blogging service. I won't be running ads, or charging for individuals to use it. My only goal is to get more people publishing content online, and if yet another blogging service will help, then so be it.
It's configured to serve subdomains, meaning you can easily set up a blog at "mygreatblog.calgaryblogs.net" and treat it like it's your own server.
I don't have a "policiy" or usage agreement or anything yet, but for now, the only rule is "don't be evil." - so, I guess that means anything goes, except for spam splogs and link farms.
I'm probably a little crazy to set this up as a free service, but this stuff shouldn't cost money for people to use. I'll start things off sharing my Dreamhost account. If it outgrows that (and hopefully it will) then I'll investigate other hosting options.