In the real world, people generally don't put in their notice until they've accepted an offer at another company.
The going rate is what the market sets eg for developers in London its £400-500pd for grunt devs in Java or Perl
Actually your downside is a side benefit to employers: you don't risk hard feeling by hiring somebody away from their old job if you latter need to work with them. (these shouldn't happen, but they do)
I wonder if there are statistics on contract to hire positions that don't get hired, and out of those that don't, is it because the person really didn't work out or was there really no intent to hire to begin with?
As a point of reference, where I work they almost always to contract to hire. I've seen a few contractors leave (they found other work), some didn't get converted to full time (those weren't actually to-hire though, and specifically short-term, although in one case a contractor was brought back twice to fill in). But in almost every other case the person was hired eventually (even if it took a couple extra months to push it through HR).