I've recently been working with freelancers via oDesk, and it has generally worked out quite well (there are some cases where people have posted portfolios that, once you see their results, you know were not actually their own work -- but those cases are rare).
However, delving into that world has exposed me to some problematic management practices that are being codified as reasonable because of the uncertain nature of individual outsourcing. Various vendors, including oDesk, offer hiring managers software that enables a freelancer to clock-in and then begins logging keystrokes and taking photos periodically to make sure the freelancer is "working".
Setting aside the privacy concerns that webcam snapshotting and keystroke logging create, these practices have an equally insidious effect on how managers understand the nature and value of work.
If you're hiring someone as a transcriptionist or data entry operator, keystrokes-per-minute is a genuine job metric. If you're hiring a call center operator, or someone to sit and monitor ongoing data streams, how long they're staring at the screen is a genuine job metric.
If you're hiring a writer, computer programmer, graphic designer or similar professional neither of those things are relevant. The single most valuable activity such professionals perform is thinking. And thinking often does not involve keystrokes, mouse movements (another thing these programs log), or sitting in front of the computer.
When I'm writing most of my best thinking happens while I'm taking a walk, lying down staring at the ceiling, or otherwise clearing my head far from a computer. The same was true when I was programming; most of my actually innovative code that solved real problems was written after a long walk or some other head-clearing activity.
The problem with hourly work is how to judge value. But actually, it isn't. In order to judge the value of hourly work you need to understand the work, have a reasonable grasp of how long performing it at a professional level should take, and be able to assess both the quality of the output and the time it took to do it.
UI event logging and "butt in seat" hour counting encourages managers to value the illusion of work over work itself. This leads to gaming the system through false productivity, and managers who accept mediocre work as viable because its output fits a timed productivity model. Such a situation is not doing anybody any good.
You'd be foolish to pay my hourly rate for my (rather lackluster) typing skills. The time I spend thinking about the project is vastly more valuable than the time spent typing it in.
And real professionals are not willing to sit around tapping keys or twiddling the mouse just to "look busy" while they're trying to think. We'd just as soon have nothing to do with such jobs.
Managers hiring freelancers on an hourly basis need to be able to recognize the time put into achieving quality results and be willing to accept paying for it, rather than trying to enforce "efficiency" through nonsensical metrics.