I have successfully used this hiring method. To say "nobody with options would do this" is patently false. In fact, it can be a great way to get in with people who have a LOT of options, but they aren't sure they want to work for YOU.

Every single time I've used this hiring method, I've gotten some of the best developers I've known. They weren't even looking for a job at the time. They just wanted to hustle a few extra hours to make some play money. I'd give them as much work as they wanted. Some of them stuck to just a few hours a week. Some decided they liked the project enough they wanted to do more.