If they had gone with the traditional free lite version / paid premium version model, you would lose all of your drawings when you upgraded. This is just a free trial for the real product which can be unlocked at any time with minimal friction. Personally, I prefer this to having to hunt in the app store for the "premium" version if I decide to make the switch.
Doing this also gives the developers the option to introduce paid updates in the future, which is potentially good or bad.
As of iOS5, free and paid versions of apps (or any apps by the same developer) can share data, so the issue of losing data when upgrading has been solved.
There is also no reason the developer can't link to the paid version direct from the app - no heed for hunting.
I don't mind them charging in-app for features in principle. but I found that the free version wasn't enough for me to draw anything serious so it didn't really let me try out the app.
I think it would have been better to go with a fully featured free version with say, just one notebook with limited pages. That way users could use the app fully, and upgrade if they used it enough to need more capacity.
Doing this also gives the developers the option to introduce paid updates in the future, which is potentially good or bad.