Well, the way you want to set it up sounds bad to me. I do appreciate the way Rackshack does it though.
1. Rent out Raqs with 128 MB ram for $ 99.-
2. Charge a high(er) monthly fee for 512 MB ram.
People (me) start out renting a raq at 99 per month and after a while end up paying 136 a month (me). Good strategy
A better way for you to do it might be along the same lines.
1. Offer a very low priced plan @ 1.95 but also with low specs
2. When people get more serious with their site they soon realize they need more (cgi-bin, more then 100 MB datatransfer, SSI, email etc) and you can upgrade them to a normal priced plan.
It's "a" way. I'm not saying it's "the" way. Everybody has their own strategy. It is the most important thing to decide on when you start your company.
Some people charge high prices and give huge discounts (50% holiday offers etc)
Others charge rediculous low prices and hope to attract a lot of low paying customers
And others charge high prices and hope to attract a few customers that pay that.
It's your battleplan. Make it a good one and make sure you win the war in the end