I think we're going to have to disagree here.
> have you ever worked with people who are used to getting paid $100+/hr? i.e. top people? it doesn't sound like it.
I saw this and wondered if you were trolling. It's certainly a rude and undeserved comment, but I'll be charitable and bite:)
My main point is that "good" developers, always have options.
My assumptions:
1) the developer wants full time work, otherwise they would just do contracting and not contract for hire.
2) jobs are plentiful for good developers.
Why would the developer assume all the risk with contract for hire, unless they had no other options? Why not just take the full time job instead?
Basically my point boils down to two points...
1) How would a company convince me to do contract for hire work when I can work somewhere else without that risk? What's my upside to doing this?
2) As long as most companies don't' do contract for hire, a company is putting themselves in a position that excludes most talented developers. ie if you aren't facebook, twitter, dropbox, etc. my contention is that the top developers will laugh at your contract to hire request.