oDesk, Elance and probably many others allow you to actually watch your developer as they work. It isn't for everyone, but it's pretty powerful when you're getting over initial trust issues.
This has the counterproductive side effect of selecting for questionable developers, though, because any developers worth their salt don't need to subject themselves to that kind of creepy degradation to get work. So it creates a problem and then tries to solve it.
Correct - but the same applies to the other sites, the time tracker is basically to ensure that hours billed are correct. This doesn't make sense for fixed price projects (as this was)