Brother Duane,
Being a Religion major, I'm curious and interested about things like this, so I called the Free Methodist Church's Marston Memorial Historical Center. According to Cathy Fortner, Historical Director at the Center, you and Ian Paul are BOTH correct. The Free Methodist Church started because some people felt the church was straying too far from the original doctrines of Methodism. Two of the issues were the holding of slaves and the buying and selling of pews. There are other implications in the word free, such as the freedom from segregated worship and freedom from secret societies.
Your post reminded me of the origins of another denomination, the African Methodist Episcopal (A.M.E.) Church, which began 73 years prior to the Free Methodist Church. From the AME Church's website:
The AMEC grew out of the Free African Society (FAS) which Richard Allen, Absalom Jones, and others established in Philadelphia in 1787. When officials at St. George’s MEC pulled blacks off their knees while praying, FAS members discovered just how far American Methodists would go to enforce racial discrimination against African Americans. Hence, these members of St. George’s made plans to transform their mutual aid society into an African congregation. Although most wanted to affiliate with the Protestant Episcopal Church, Allen led a small group who resolved to remain Methodists. In 1794 Bethel AME was dedicated with Allen as pastor. To establish Bethel’s independence from interfering white Methodists, Allen, a former Delaware slave, successfully sued in the Pennsylvania courts in 1807 and 1815 for the right of his congregation to exist as an independent institution. Because black Methodists in other middle Atlantic communities encountered racism and desired religious autonomy, Allen called them to meet in Philadelphia to form a new Wesleyan denomination, the AME.