Where did you ever get the idea that your ISP must provide you with a modem for free? They don't. Many ISP's do charge a rental fee (depending on the market and company). I know for a fact that AT&T and COX both charge modem rental fees (at least with COX you can purchase your own modem and forgo the monthly fee). The new FCC regulation that went into effect last summer only prohibited the practice of ISP's charging equipment rental fees for modems that the customers/users actually purchased themselves (yes, some ISP's actually did this).
As for the OP's concern, I personally believe-in using a separate modem and router. You can pick and choose better performing hardware this way, plus, you can upgrade one or both of them as newer/better hardware comes on the market.