Lots of people do it. Check out Na-No-Blog-Mo if you don't believe me, it has a sprawling list of bloggers who have published their novels for free. Blogs make publishing so easy--if you know how to find your readers, you can quickly, painlessly get your novel out there.
On the other hand, we just don't have a good system for helping writers earn money by publishing their novels online. That system will exist someday, especially as audiobook podcasts and print-on-demand services become more profitable.
Until then, don't squander your work-- just give your readers a taste. Comic book writer and novelist Warren Ellis is the perfect example. He built a dedicated fan base on his blog, and then he unleashed the first chapter of his private detective novel Crooked Little Vein for free--just in time to take a hardboiled swipe at Harry Potter.