I told them that offer had poisoned any further conversation.
In all seriousness, I'm not sure why so many people assume that the salaries posted on AngelList should be taken at face value. With minimal due diligence, it's clear that a lot of the startups are unlikely to have enough funding or traction (in the form of revenue) to support the salaries that they purport to be offering. As you pointed out, they're just trying to get warm bodies through the door and hoping a few of them will drink the kool-aid.
I ultimately declined their final offer which they seemed pretty surprised by. It's hard not to take personally after working there and proving my value for two months. Instead of a bum offer from a company I just met, which is no big deal, it really felt like people I thought were my friends were trying to take advantage of the situation. I probably will never do another contract-to-hire. I'm not interested in companies with a try-before-they-buy feeling about candidates, because I think it belies an unwillingness to value and respect the work of talented hard-working technical people.
I made some money and got valuable life experience from it, but I'm still sad about how it went down. There's enough credible salary information out there that companies are really doing everyone a disservice by pulling an extreme lowball on a candidate they want.