I think that most of the posters here have staked out a position without considering what the real issue is.

The fact is that both sides have a point, the issue/problem is contract verbiage and disclosure. The client should know up front what he is buying and what the ramifications of his purchase are. If both you and the client agree that for X price he gets why Y, then no problem.

There is also no reason that this could not be used as a new profit center, why not word your contract so that for an additional fee that client gets the source code?

Personally I have always given my client's the source, I'd rather keep them with good customer service as opposed to holding them hostage. So if any of you guys inherit a job where all the source code is in a jump drive zip tied to the processor, it was probably mine;)