From the Instapaper weblog:

At that time, there were concerns that a full Instapaper API would result in free, native iOS apps that could be used to replace Instapaper, and thereby cannibalize sales of the Instapaper iOS app (the Android app was still a year away at this point). Instapaper’s iOS app has been free since last September and, with all of the great additions we’ve made to our Premium offerings, we don’t see any reason to continue restricting API access for non-subscribers.