a few £ (maybe £5, £10 a year tops if its not popular?)

Not much at all.

I asked around at my work (an ISP) but apparently while I could get free broadband if I wanted it, they won't trade that for a free domain and webspace. Seems a little unfair to me

A few years ago here in Belgium you got a free .be domain if you signed up with a certain ISP, IIRC. It's possible that that is still the case, but I'm sure you only get the first year for free.

As Jakg said, a domain in itself isn't very expensive. A decent webhost on the other hand... But come on, there's plenty of people here who have at least a couple hundred megabytes to spare and the means to set up a webserver, so that shouldn't be too much of a problem, either. The biggest problem, as said before, is keeping it up to date and interesting for people to visit. This requires a continuous effort.

I think it should just redirect to the LFS site, but with themes. So trees and grass for Blackwood, sand and sun for Fern Bay, etc

My pov is that having and maintaining all those domain names would be rather... unnecessary.

The whole thing could also be implemented (still as a community project) under e.g www.lfs.net/blackwood and other corresponding links. whatever. Much cheaper, they don't have to be überawesome or so interesting that you'd watch them everyday (so they don't have to justify the cost of the domain) , but they'd still be there.