I want to decline an Outlook Calendar meeting invitation, but I still want
the appointment to be in my Calendar with time shown as "Free"... is this
possible?

When I hit "Decline" on an invitation, the meeting doesn't show up in
Calendar.  Sometimes there are conflicting meetings and when an accepted one
gets cancelled, you can wind up attending a previously declined one.  
Unfortunately, the only remnants of the declined meeting are in your deleted
mail folder (and not in your memory).