Like you said nothing is ever "free", but getting a functioning spa at no cost is a good place to start, leak or not. Whether to take it or not depends on a lot of factors. Here are a few that pop to mind:
1. Are you able to handle repairs to plumbing and electical components yourself? A free 16 year old tub is a good place to learn about spas, but would become expensive quickly if you have to bring in a professional.
2. Will you be placing this in a location where a leak could cause damage to something else?
3. Regarding location, do you already have place to put the spa, or do you have to spend time and money on site prep and electrical?
4. Does it come with a good cover, filter and chemicals, or will that also add to costs?
5. How much time and money are you willing and able to spend on this project?
6. If you decide down the road that it is too much trouble, can you get rid of it inexpensively?
If those questions still leave you wanting to take this on... to the question at hand! The wet insulation is probably a leak, but since you said you had to lift it out, I suppose it is possible that it was sitting somewhere water collects, and the insulation just soaked it up (not likely). Either way, you will need to evaluate the the frame for rot and check to make sure on the leak. Ask the previous owner how much water had to be added and how often. Look for signs of long term water damage on the spa and in its previous location. Perhaps removing the wet insulation while the spa is on its side will lead you to an obvious failure. If not, to check for leaks you will need to place it somewhere it can be run (ideally on blocks so you can get under it to see where the water is travelling) add water and dye, run it and then follow the trail of the dye.
Good luck!
