I asked this on Twitter a couple of days ago:
From what I can tell, people who've done this successfully fall into a couple of categories:
1. Radiohead, etc.
Radiohead could put out a blank CD and still sell 250,000 copies and get glowing reviews. I'm sure I'd buy one.
2. Four Eyed Monsters
FEM made something like $125,000 from DVDs and YouTube ads, but not until after they'd played festivals and shown in 31 different cities and been sponsored by Spout and YouTube.
3. Stuff on Hulu
What I'm having trouble finding is evidence of single feature-length films that started out free online and then were able to translate that into something more tangible than a view count.
And the more people I ask, the less possible it seems. Perhaps it's a myth?