I'm familiar with a few people who have done this, and they really enjoy what they do. I wish anyone doing this all the best.
However it suffers the same problem as 1). That is, you may not have the energy for other projects. I understand the sentiment of your suggestion, which is: "My side project is also my work", but then you are committed to that project for X amount of time. Whereas with a typical side project that I might play with on the weekend, or with open source contributions, I am free to dabble with whatever interests me on that particular day. It is this freedom and flexibility that I am seeking in my life (partially because I have the attention span of a newt :)
However it suffers the same problem as 1). That is, you may not have the energy for other projects. I understand the sentiment of your suggestion, which is: "My side project is also my work", but then you are committed to that project for X amount of time. Whereas with a typical side project that I might play with on the weekend, or with open source contributions, I am free to dabble with whatever interests me on that particular day. It is this freedom and flexibility that I am seeking in my life (partially because I have the attention span of a newt :)