I don’t have a solution to the problem, but I know that trials won’t transition customers who have grown up in the age of free into people willing to part with money for software. A martini may be $10 whereas your app is a mere $2.99, but people are conditioned to always pay for their liquor as food and drink has always been a pay-for product.
Williams has some really smart points in his post and I think he is spot on about upgrade pricing.
I don’t think free trials are needed at all. If you think people aren’t buying your software because they can’t try it, then you simply are not doing a very good job explaining your software (with screenshots, descriptions, website, screencasts, etc.). There’s a lot of software I won’t buy until someone I know has it because the information about the product is scarce — and what is available isn’t very informative.