It obviously works for writers, designers, artists etc, but for various reasons, I've always been skeptical about whether the work would be there for a developer.
There's tons of work. I've freelanced with Ruby on Rails for a good chunk of the last few years, and I know at least half a dozen other freelancers who do Ruby, PHP, and Objective-C work as well. The hardest part, I think, is finding the work. It is indeed out there, but the signal to I-just-need-a-quick-wordpress-template-thrown-up noise ratio is small. One of the best avenues I've found for freelancing is to network with web development and creative agencies, do a little subcontracting for them, and then subsequently absorb some of the smaller projects they're approached with but are too small to be worth it for them.
There's a lot of work available - I did freelance PHP and other platform development during university. The issue is aligning customer expectations. "Make me a facebook for $200" etc.