Provided that you can guarantee reliability, charge a buck a site (forever, for a year, a month... figure it out). Maybe offer the first few sites for free so people try out the service. I'd pay a buck a site
Check out AreMySitesUp.com (and other competitors) and their pricing, and offer something more competitive price-wise.
I'll see how far the free model takes me. If the monthly server costs starts to take away a considerable chunk of my salary I'll probably consider taking payments from the most active users.
As you've alluded to this marked is swamped with competition. Usability, pricing, and features are the only attack vectors as I see it.
Check out AreMySitesUp.com (and other competitors) and their pricing, and offer something more competitive price-wise.