I think the short answer is "Nobody has made that model work just yet, but reasonable and knowledgeable minds may and do disagree about whether it ever will."

Longer answer:

With the notable exception of the Wall Street Journal, few if any print publications have successfully implemented a paywall. The New York Times has tried a couple of permutations but none of them follows the model you lay out.

The "why" part of your question is too huge to summarize well here. Very crudely, most newspapers rely so heavily on syndicated or wire content that users can get the same info for free from other sources. Since papers usually get most of their revenue from ads rather than subscriptions, they're more concerned--broadly speaking--with circulation and CPM than with the size and quality of their own newsrooms. Sad to say.

I'm not sure what you mean by "community paper"--do you mean something like the Times or something more local, like at a neighborhood level?

For some really interesting thinking and explanation, I would start reading Steve Yelvington and Clay Shirky:

http://www.yelvington.com

http://www.shirky.com/weblog/

Yelvington started in newspapers and was part of the first attempts to take papers online in the era of CompuServe and BBSs. He still works for a newspaper pubisher (Morris Publishing Group) that is trying out some interesting models combining professional investigative reporters, expert commentator, and user-generated content (www.blufftontoday.com).

Other people, like Steve Brill, are debating the merits of setting up a micropayment model--i.e. I want to read this Economist essay or this Krugman column so I'll configure my PayPal or some other account and then pay $0.25 to read it. Some people think this has potential, some don't:

http://www.niemanlab.org/2009/06/micropayments-steve-brill-is-not-optimistic/

So do some reading and form your own opinion. It's a really interesting space to watch, especially up here with all the post-PI efforts springing up (Post Post Intelligencer, seattlepi.com, Crosscut, et al.).