The basic problem is this: banner ads are a way to make money and most people accept them, but I can't go retroactively place them on everybody's journals ... many people would be pissed off and leave. We don't want that. So, if you don't have banner ads, can LJ rely solely on paid account revenue? That remains to be seen... ideally, yes, but banner ads would be a nice backup plan.
So here's the two solution, proposed by user maltor --- instead of just having two types of account types "paid" and "free", also introduce the notion of an "early adopter" type. All users before and including user 15374 became marked as "early". Now, we take away certain features that everybody already has (like being able to create new styles), and only paid users or early adopters can use them. Other features (like text messaging and modifying the look of the comments page) remain for only paid users as an incentive for early adopters to pay.
Let me explain why the ability to create new styles was the key feature I took away from free users --- creating styles is key to many things: 1) embedding journals in your website, 2) being able to customize the HTML makes putting ads on journals so impossible. Now, I can mark system styles as for paid users only. So, we'll have like 3-4 styles available for free users, which'll eventually have banner ads in them (tasteful non-popup ones). However, paid users (and early adopters) will be able to select from the list of all styles (which won't include banner ads), or they'll be able to make their own. The best part of this solution was that it was so simple to implement.
The bulk of my effort tonight was spent working on the pretty paid accounts page where people can learn about paid accounts and easily pay for one, without having to go through all the paypal hassle like they did before. Also, the new payment interface sends me emails in a consistent format that simplifies the payment processing job.