My user id should tell you what I do.
Yes I work from home, most of the time (when I'm not on a shoot or meeting clients).
It sounds good from the outside, like a lot of fun and a lot of flexibility, and I will admit that I love my job and I love the flexibility that I have, but it's not all fun and games. As a business owner, I probably put in 70 hours a week of work - there are nights that I'm up until 3 or later to meet a deadline. The work I do alternates between extremely active to the point of being physcially exhausting (the actual shooting), to hours of sitting in front of a computer (editing, processing, doing bookwork, marketing, dealing with clients, etc.).
When you work from home it's easy to procrastinate, to do laundry instead of the boring part of the job you need to complete, to wander down to the fridge and snack (yea, a big part of my problem) instead of concentrate on work, etc.
Also, there's limited social interaction (although more now with message boards like these and IM and so forth), no benefits except those you pay for yourself (my insurance runs me $480 a month just for me), no sick days, no paid vacation, no one to hand a problem over to and say "you're the boss, you handle it".
Also as far as the kids thing goes: I have a lot of friends who are in my same profession who thought they'd keep their kids at home while they worked. None of them could do it ultimately. They wound up either having to cut back to part time work, or to hire a nanny or find a good day care for at least part of the week. They all (and this is 6 women, at last count) said that they could NOT work at home and keep their kids at home w/out some kind of outside help.
As I said I love what I do, but it's not really the life a lot of people think it will be when they think of working from home and getting to hang out in their PJs while they conference call ...