You do start to go insane and there is an effect on your resume/CV as the black hole widens there.
I worked alone in a lab doing it, none of my co-workers were interested at all.
The way I see it to anyone who might question why I'm lying on a couch at work with headphones is that the hard part of my job happens in my head. The easy part is what I mash into the keyboard after I've spent hours finalizing my plan of attack in my head.
I knew someone who basically took full advantage of this. He was a contractor too, but just added a clause that he'd be allowed to work from home/remotely. So he was doing multiple gigs simultaneously; so instead of making $100/hr (or thereabouts, I'm not sure about the exact numbers), he was making $400/hr. It's probably not legal to do what he was doing, but he sure was livin' large.
That perfect storm you described indeed happened several times and I was indeed lying about it but you know what? I was willing to own up to every single promise and engagement I made -- and I did, even though it took a toll on my mental health and work motivation.
And no, I wasn't living large at all at the time.
That is why it is a good idea to make the acquaintance of some subcontractors that you can further contract the work out to if a "perfect storm" happens.
Of course it's legal; a contractor is not an employee, they are a company in their own right. A company can manage its operations however it likes.