Too much binary thinking in this thread and too much letting a few things totally destroy the belief that a pre-pay model can work.
There needs to be some middle ground where boutique and start-ups can get the funding help they need to get off the ground and buyers are not put in a situation of paying a pre-order for vaporware and for something with a totally unrealistic timeline.
I don't think any boutique company should get into this business if they are not willing to fund the development of the game on their own. There is certainly a lot of risk in that you then design and build a game/prototype that no one wants, but that is the risk you need to take if you want to play in this space.
Once a company has shown its product, one that is 95% of what the expected production model is, then great. Start taking pre-orders, as long as there is clear path in place to get the games produced with a realistic time frame. And if there is one thing that every one of these companies should have come to understand at this point is that Communication throughout the entire process is key. Not saying you have to reply to ever freaking post on pinside or elsewhere, but a consistent level and frequency of communication is needed -- even if there is nothing new/good to say. When people don't know what you are doing, they assume you are doing nothing (or worse).
Keep in mind that pre-orders is as much about measuring demand as it is about raising capital. It would certainly be nice to find a way to measure demand for a title, with some level of believability, without taking pre-orders to help reduce the risk of designing and building a machine that while sounds great, no one will actually spend money on.
If you build your prototype and then can't get enough pre-orders to make it fly, well, that really sucks, but understand that can happen, give the money back and move on. I respect what Riot/Wooly is doing in this regard (although escrow money should be held by a third party).
A small company is going to need that capital from pre-orders to be able to buy parts, the profit margins are way too small to be paying high costs to acquire capital elsewhere. If as a community we are not willing to support this aspect of it, via some form of pre-pay model, then we will not see many of these games come to fruition. Again, I'm not saying pre-pay based on a flyer or an announcement, but when you have seen and played the machine. Of course anyone willing to support a company by pre-paying earlier and understands it will be a roller coaster ride, that is great and would benefit all of us, but that should not be 'the model'.