The NIOS II processor is free to the extent that once you purchase a license to compile the NIOS II code through your tools, then you do not have to pay any royalities for inclusion in any of your designs.
The NIOS II IP is delivered with the basic Altera software IP release, but until it is licensed it will only allow "teathered" usage in your designs. (Via open core plus and the JTAG cable).
If you purchase it with a Kit then the license is good for one year, after which it will no longer compile. If you purchase it as a full subscription then it will compile forever, but after one year, if you do not renew your maintainance, then you cannot update to the then latest version of Altera tools (but the latest one you get just before your license expires will work perpetually).
I hope this clears things up.
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