i wouldnt say usage, more so used by whom. it doesnt relaly bother me if a northern nationalist calls the 26 counties the free state, its the "other" section that use it( in a derogatory and patronising way yes )that I find offensive.
I think in derry and tir eoghain its used because they feel left out, particularly in derry, not the waterside though ;) but not in an offensive manner.