I have done a lot of "freelance" jobs. Usually that means from an outsourcing site.. I always work hourly now.. even it is an Indian (outsourcing) rate, you will be much better off than a fixed price.. even with someone who has a US budget, most will naturally screw you even if they are well meaning people, because budgets are still fixed budgets, and most projects aren't fixed in any way.

I think the reason people get away with that is because $500 goes MUCH farther in some countries than it does in the US, and so those coders actually can absorb a bunch of bullshit/new requirements in these fixed fee projects and still make money.

A lot of times the less money they have or are willing to allocate, the less reasonable they are. Probably because they don't understand programming and/or are just not happy people, because they are stressed out running a small business without a lot of margin. Or they don't have a lot of money because they are unreasonable people.

I would say walk a fine line in what you are saying, do your best, but start letting them know right away how much money you are losing and that you can't continue for much longer. I would be nice to them (even though they don't really deserve it) and try to get them to agree to let you work on it just to a point where it is ready to transfer to a different programmer. Tell them they may be better off with someone at a country with a much lower cost of living who can absorb the new requirements and tweaks and still pay rent or whatever.

Also remember that you can give the other party a poor rating and review on the site as well, so that is not a completely one-way street.