Well, technically. According to Jesus, I mean Nifflas:

"I don't want to get into the mess of charging for them (expansion pack for Knytt Stories). Having worked so much on the expansion levels though, I really want to do something special with them. I'm starting to think something more towards a request at the download page that an amount of $10 or something is donated to some charity organization (Amnesty, Save the Children, etc.), in order to download Knytt Stories - but of course without any kind of verification (I'll just hope that people will be kind enough to do that)."

"Someday I really do plan to sell my games. I still want to give everyone who helped me with Knytt Stories something extra for their effort, but it might end up being a free registration of my next game, when I feel more ready to sell things online..."

"Anyways, I've recently been contacted about a few magazines who would like to write articles about my games. Releasing something really huge like Knytt Stories for free might be very good for my reputation, and open up for things in the future, who knows?"

Read the announcement here