The only thing I can see possibly beating Twitter at this point, is to turn these small messages into an open standard, like XMPP or RSS. I think Dave Winer was on to something there. A form of RSS with 140 character maximums, and following people would behind the scenes just be subscribing to their RSS feed. You could host your own feed, or sites could exist like Twitter, where ads are shown on the side, and provide free hosting for the masses.
I agree. I think the WordPress model would work for a Twitter-like service. You could pay WordPress.com-Twitter-clone for a bunch of nifty but for the general masses features, or just see an ad every now and then for free. Or you could totally take your WordPress.org-Twitter-clone installation, buy your own hosting, and view and share information without ads on your own dedicated carefully crafted system.
Yep. I think that is the best way.