Well, for testing purposes, I don't see why someone can't use a free domain. After all, if it is a test, the webmaster shouldn't really care about what visitors think about the fact that they are using a free domain, and, to be honest, the only thing that should matter to the end user is the content itself. Granted, it is true that few people will be willing to do any sort of business with someone who does not have their own domain and hosting package.
Anyway, to answer your question, if you are looking to test your traffic and traffic retention and all that, you will want your content to actually rank. So, in that case, I would suggest going with Blogger and not looking back, since the earlier you get the testing done, the better. If you are trying to test something like functionality, but don't care at all about visitors, try a .tk domain with free hosting or whatnot, and install some kind of content management system like Wordpress, Joomla and such, depending on your needs. It might seem scary if you've never worked with one before, but there are plenty of premade plugins and tutorials to help you do almost anything you can imagine, even transform the site into something more than just a blog or forum.