I used to run a free hosting service. It lasted about 6-7 months then all hell broke loose as we had over 2,000 free sites and most were created from the asian population so we were unable to monitor content since it was in a different language.
However we used a script... can remember the name of it that allowed users to create accounts on the fly. It also had some security features built into it which were rather nice. It had..
1 ) Email confirmation on creation of the account
2 ) Account dupe checking
3 ) If the site received less then _blah_ hits per month it would delete it
plus a bunch of other options in the config script.
As is stands in business Im with now... we continue to setup accounts manually. We feel it is more secure for our users because of credit card fraud. Any user that uses a credit card on our site we call the number they provided for voice verification.
Also with manual creation of the account you actually set it up... So you can remember people and make it more of a relationship with your clients, which a lot of clients will like.
As for people that want their account created on the fly..... why??? As long as its done within a timely manor. But if they want on the fly, and if it is an absolute emergency to get a site... call the damn web hosts number