I think a lot of freelancers (myself included) go through the following process:

1 - Start out with fixed price estimates based on time (I think this will take 10 hours, so I estimate £1000)

2 - Develop good relationships with clients and start just charging hourly for work done (This took 12 hours, so here's a bill for £1200)

3 - Take patio11 (et al)'s advice and start charging based on value (this 10 hour job will increase your profits by £100,000 so I'll charge you £10,000)

In short, hourly IS better than fixed price time based estimates, but fixed price value based estimates are even better.