Is it possible to upgrade to the personal package and just continue to use the free package domain name and access the features of the personal package. It's more because the user does not want to pay the $8 / year domain fee.  At least not yet until they know they're going to keep the site.

Yup, most of the features of paid hosting (fantastico, email, etc..) won't work without a domain. Luckily, a domain only costs a few dollars a year and it's SEO & website-value benefits out way the yearly cost.