I think as with all etiquette (but especially wedding etiquette) issues, it varies regionally and/or depending on the circles you run in. out of the weddings I've been to (midwest, middle class) it actually seems to be pretty common to offer a bar with free beer and wine but cash liquor. I like that option, and I've never heard anyone comment that they thought it was inappropriate or crass. at my own future wedding I'll probably do either that or just open bar, beer and wine only, to be on the safe side. we like beer and wine the best anyway, and I think most of our friends/family would be happy with that :)
First, I'll note that common does not mean something correct! I mentioned above many will choose to ignore this rule, and further that different cultures do vary so I can't speak to all of them, but in America/English, this is the traditional proper way.
We opted to abide by it by providing all open bar. (Btw, a limited open bar, as you suggest, with beer and wine or whatever you choose would be absolutely acceptably as well by traditional etiquette experts. Again, the idea is not that you must make everything available but rather that what you do make available is not charged to your guests.) I'll also add that it would be equally rude for guests to comment negatively on your hospitality and complain about it being inappropriate or crass to you or in public.
ETA: And it's not like you can't search the sites of the traditional culprits: Bed Bath and Beyond, Crate & Barrel, Macys, William Sonoma, Pottery Barn, Bloomingdale, even JcPenny, REI... I've never personally been invited to a wedding that wasn't registered at at least one of those places. There are also sites online that will find the registry for you.
That all said, I fear I've hijacked this thread so perhaps we ought to move to a new thread if folks continue to be curious about the topic?