There's no excuse for wasting your time like this; one can only assume they didn't or don't know how to properly evaluate a design candidate, so they compensated for their inexperience by taking advantage of you. Unprofessional to say the least.

You're right -- the appropriate and respectful thing to do would've been to bring you aboard as a contract-to-hire, and if things didn't work out, let you go -- after properly paying you for your time and product. If you can afford to hire someone, you can certainly afford the fractional (and risk-free) cost of trying them out.