Will the GPS service on the iPhone 3GS be free?

Yes and No.

If you go to the app store and look around you can find some pretty cool GPS apps for free or a few dollars. (MapQuest 4 Mobile is a good free one). Or you can get the AT&T Navigator App in the app store and pay $10 a month extra on your AT&T bill. (Though after one year of that you could have bought a real GPS)