Yes, indeed... no free tests.
BUT when you're starting your freelance career or do it part time, you often don't have a lot of clients and constant work. That's when you're building your reputation and portfolio. Clients who ask for free tests are usually from freelance websites such as Elance. So the goal for any freelancer is to ideally be able to get away from freelance websites and have their own "client bank". That's why sometimes, compromising can pay off and I totally see why Xaigo still want to try his/her luck with the 10% who might be long term clients.
Unlike plumbers or mechanics, freelance design often mainly involves a time investment and no parts, transport or extra costs other profession need to pay for. So you can compare yourself as a lawyer who would accept to give a free 15 minutes consultation by phone instead, and act like one.
If you want to simply refuse free tests on freelance sites like Elance, you can mention that it's against the rules and you don't want to get your account banned. As simple as that.
There's 2 reasons why clients ask for tests:
1) They've been mislead in the past by bad and dishonest designers (fake portfolio, keeping files in "hostage", no skills, bad management, work not done in-house, etc.)
2) They're cheap and are trying to get free work
You can investigate and not be afraid to ask why they ask for free tests. Honest clients will tell you about their past misfortune with freelancers; make them talk to know what's up with the free tests. The bad ones will say "we want to try you to see if you're a good fit". Discard those without any regret, they'll drain you anyway and are usually a real waste of time with no potential.
...but I still want to try my luck with those 10% where the client
just doesn't know how much time and effort the test demands.
You're the one accepting to be generous on your own terms and you can make this clear; if you want to try giving "free" tests to that 10%, you need to have the attitude of an entrepreneur and take your time before accepting to do the tests. Don't beg for work; make it clear that your time is important and it's a privilege you're giving them if you offer a test. If you have the right business attitude and show you're not all about money (or desperate), you will be surprised how many clients will get back to you after a few days and decide to simply pay for the whole project without any test.
Most of the time, the clients will ask you for test jobs that would be useful for them. So the way you can "win this game", is by offering them to do a partial test for X amount and if they aren't satisfied, you will refund them. You can also offer them to start with the first drafts of a real project in exchange of 25% of the project's value; if they're not happy with the result, the project is cancelled. In any way, you should never lose anything and you can remind them they're not risking much either. A business owner shouldn't be upset in losing a $25-$100 for a set of drafts for a simple project. They even get a deductible on their taxes for these things.
This usually work well with the 10% you're talking about because their issue is not about payment, it's about meeting the right designer who can deliver the service as promised and who makes their life easy. They will be fair with you. If you put that kind of condition in the terms, they will feel reassured about your honesty and might also be impressed by your self confidence. If you're a good designer, they will fall in love with your design and your personality. The "client psychology" is that when they see something they like and need, they'll really want it; serious people in business don't have time to waste. So make that happen!
You cannot fail with this since you get paid anyway, and if they're not satisfied, they don't really get anything free from you but a few hours of your time (no files, only useless watermarked proofs). If you got skills, you will never have to refund anyone and that's what's funny about this. You're not really taking any risk.
Of course, none of these test proofs should be usable; you must add watermarks and make sure they cannot extract any design from it (ex. no PDF, give JPG proofs.)
You mentioned that the tests are often requiring a lot of time; you can decide to offer them a very small test such as a web banner or something that is very easy and quick for you to do. And you can give them options but not necessarily stuff they ask/need. That is your choice.
If they don't want any of these option, that's when you can come back with starting a real project instead, with a down payment but no obligation for them to continue the project if they're not happy with your first drafts.
You can even tell them you just want to get started and these tests are a waste of your time and their time (and money). Have the attitude "let's just get things done, I'm the best, trust me!"
If you are confident in your skills, you know they will want to work with you anyway after "trying you".
But if you try this on clients and they simply don't want to compromise at all, then it might not be worth giving them tests unless you want to keep these designs later for your portfolio or if you want to do the test because it's fun. The good clients will always treat you with respect and accept some compromise; I never had a good client not accepting some kind of deal, but I can guarantee you the bad ones will try hard to not pay anything. Discard them.
I hope this helps! I'm not saying you should always give tests, but this is a very efficient way to get your way in and show your personality during the negotiation process. In freelance, skills are important but so is attitude and the best way to connect with good clients is to show you're a business person as well.