Just to add a little fuel to the fire... Did anyone go to the website of the aforementioned ad? Did anyone check out the IMDB credits of anyone involved with the project?
Exactly. I think the crux of the matter is that I'm talking about a different, admittedly less common, scenario from the one in the sample ad.
Reading that ad I can tell it's pretty much exactly as your interpretation would state. The dude blew his wad without thinking about it and is going to have a crappy post mix as a result.
That's the common side of the List; which is why I always say that one should not think of it as a site to find jobs. It's worth a peek to see if something good is happening, but by and large the gigs there are cut-rate at best, complete cluster-intercoourse-sessions at worst. The latter scenario is by far the most common on the List, and the jack-wagon that posted the ad linked here is no exception.
Having said that I'll see your fuel and raise you a stiff, fire feeding breeze.

Craigslist has it uses, as does donating your time to projects on a very selective basis. It should be done with specific goals in mind if you are going to get involved with people you haven't worked with before.
Example:
I frequently work for a guy that runs a small production house the Bay Area. Lots and lots of corporate video work. One of my most reliable gigs actually, looking at long term history.
Once upon a time he had a short film side project that he wanted to direct. A producer friend of his (a real one, not some poser) brought him some script that they really loved and already had actors in mind.
They needed a 1st AC, but there was no budget for one. There was barely a budget for the project at all. He posts on Craigslist, I respond because I'm at my transition point where I am working paid PA gigs, but wanting to get more credits in the camera department where I really want to be. We chat for a bit, I come to his office, do a prep day and see what his company is all about. I do the shoot day, work 14 hours - unpaid - say "Thanks very much for the day, was great working with everyone," and head home.
A couple weeks later I get a phone call from him, "Hey David, are you available on day X, and by the way, what's your day rate?" That was a couple years ago now, and I continue to pull work from him, a lot. We also just did a music video last november for his band on which many of the crew were volunteers. We've had some interesting conversations the last few times we've worked. Certain aspects of his goals are turning out to be very convenient for me and approaching my goals.
All because I responded to what a lot of people in this thread would have called a "slave labor" ad.
Now here's an extension:
By virtue of that connection, I repeatedly worked with a grip who I sort of knew from a feature where I was a key pa/coordinator. He also ACs and is an unmitigated bad-ass. After a while he asked me if I was available to sub for him on this show that he ACs. That job puts me next to an incredible DP with tons of experience and very well respected in this area. That's also turned into a very good repeat job.
Which, by the way, has netted me two other shows by virtue of people I met working on that show. In fact, when I phone interviewed for my current gig, the line producer even said to me, "We're very interested in working with you, I see that you have assisted for <Insert DP name here>. We tried to get him for our show but he wasn't available"
Anyone noticing a pattern here?
Craig's list is where you go to roll the dice and try to make some new contacts, or make a semi-lateral shift between crew departments. It's not where you find jobs. The people you meet are where you find the jobs.
The trick, as Alcove smartly implies, is being able to suss out when you are reading an ad from a jack-wagon, or when you are reading an ad for a legit passion project that is going to get you actual real work down the road. Evaluating the PIE. That's what it's all about. Almost everyone I've ever met in this business did some amount of unpaid work early in their career. Many still donate their time to certain projects, or at the very least provide their services at a rather steep discount. Of course most of those interactions happen outside of CL because the people already know each other, but still.
Edit:
I want to add a short bit about the other side of the coin. People who show up for these side projects with a ton of "Well, I'm not getting paid, so I'm doing you a favor" attitude's generally don't get the call for paid work when it comes around. Folks who bust their ass no matter the day rate (or its absence), who aren't trying to be the smartest guy/gal in the room, who don't bitch about the long day, who are generally pleasant to be around, who know their job and can do it well under pressure. Those are the ones that get the calls back. This biz is a two way street, and yeah there are a TON of jack-wagons. But there are also a ton of great people who love the work, and sometimes they need a few extra hands they can't actually afford.
Fortunately though, those folks are smart enough to know that putting money into the post audio mix is right up there with paying with any other "key" crew.