With his new Ghosts I-IV, he's offered a variation-on-Radiohead that I think may help smaller acts dip their toe in the "pay what you want" waters without completely giving all their music away. Rather than offering his entire 36-track album for free, Reznor gave fans access to nine tracks to do with as they pleased (share, remix, whatever). If they liked what they heard, they could buy the rest for $5. They could also buy a deluxe edition and a $300 (!), 2,500-copy "Ultra-Deluxe Limited Edition" -- which sold out almost immediately (?!). Ghosts is both a potential tool and a money-generation machine, and Trent's getting rich(er).
Here's my idea, then, for supporting yourself while still using your music as a marketing tool: Give away a couple songs for free. Your best songs.
As small independent artists, you aren't selling singles and you probably aren't making a ton of money on individual track sales via iTunes. Most of your non-concert money is probably still coming from sales of complete albums. Market the album by giving away the best pieces of it.
People will pick it up, dig it, and pass it on. They'll make it their ringtone. Other people will hear it and ask about it, all of which will drive traffic to you. Some will shell out $5 or $7 for a CD. Not everyone, but more people will be hearing your work in general, so the money will shake out. Then, for the people who really love your work, figure out some kind of Reznor-style deluxe edition. Give them a shirt and a live CD and a limited-edition booklet of your doodles or something.
It's a great way to reward your most loyal fans for their love while charging them insane prices for something unique. It will reward their love and also compensate you according to how much you move your fans.