As a business format, the pros of contracting in your case are: you remain unencumbered by employee contracts, so you can actually own the products that you are building without getting an exception from your employer; and flexibility.
The main con is that you may wind up doing nothing but contracting. It will tie up your mental bandwidth so that you can't focus as effectively on your startup. Everyone talks about contracting and freelancing like "easy come, easy go" but the reality is that you will get pulled into thinking a lot about your contract projects.
Plus everything that Len stated about the pricing dynamics. Online buyers are incredibly cheap and flighty, and places like ODesk give foreigners working at an alleged fraction of the price of US citizens the opportunity to show directly how "expensive" you are.
If you REALLY want to contract, make local contacts, network, put up a web site, and expect to deal within the US for the most part (and locally in most cases) - your value add will be, in part, that you are right there to serve. However, this is really its own business, demands that much attention, and will eclipse your startup.
Ok, you want an answer. Here's an answer.
All businesses need operating capital. In the instance of a startup this would be funding simply to stay afloat personally so you can pursue the startup. That is the point of contracting.
So consider the following set of principles as a possible model:
1) Segregate your contracting work from your startup. They won't mix as we have discussed.
2) Contracting can be conducted as a side activity.
3) Founders can be pulled in as required to participate in billable work (contracting), to keep the funds coming in.
4) Anyone not participating in billable work is expected to spend equivalent time working on the business or its I.P..
5) Contracting income is then dispensed to all by some formula related to work hours. To keep the startup viable, you pay everyone, and you don't distinguish between labor toward the business and labor toward the billable side work.
In other words, manage the contracting work by using the founders as a labor pool for billable work. And understand that it dilutes your work toward the startup. You might have 1.5 people working on the startup and 2.5 working on billable work to keep things afloat.
Since there are several of you, it doesn't need to be a black and white decision, to contract or not. This is assuming that everyone can be somewhat interchangeable as far as duties.