They asked me to do a piece of free work, and I understood them to mean that I already had the job. It was weeks before I heard from them again, and it was a different exec who made it clear I hadn't been hired yet... but still wanted me to do more free work for them. I declined.
As it turns out, they only had about enough work to keep me busy for two months, tops.
Terrible, terrible, probably illegal in some aspects.
NOTE: When a potential employer asks you to do free work, make sure you have a way of "taking back" the work you did for them. Save the old version, and re-upload it to the site. Otherwise they just think they can get everything done for free by duping tech writers.