How do I handle this interview/job offer situation?

Take the job for awhile. You need the money, and if you're battling depression and anxiety you're currently not in the best shape to freelance. Freelancing involves having a tough skin in places regular jobs do not. The job may not be your dream, but it sounds like a quick read of "SEO for Dummies" and you can sling the jargon without too much hassle. Meantime, keep the CV dusted off and apply for things you do want. Given it's a web-based job, after you've shown you can do their job you'll have every argument to do some of it from home, on which you can progress to working up applications for jobs you prefer. Win win.

Another option is just to request the amount of money that would make this worth it to you, or a guarantee of flex hours that would let you still get to your appointments. The worst thing that happens is they say no... And thus, problem solved either way.

I would also be turning this job down when they may have just rescinded an offer from someone else just for me, which just feels awful. Let go of this guilt. I don't think you actually know this to be true and, if you do, it's on them for being hasty. If you can find another full-time job fairly easily, so can the person to whom they previously offered the job. Have you considered that they may be trying to figure out how to hire you both? Perhaps your part time preferences would be perfect for them too... it doesn't hurt to ask if that's still a possibility for you.

First, you are in no way whatsoever required to take a job that you don't want. This especially applies if you're carrying the extra burden of anxiety. The job interview goes both ways. They interviewed you, liked you, and at some point after that, asked you to complete some paperwork that does NOT seem to be part of a formal job offer just yet. You, in effect, interviewed them, wrestled with your conflicting feelings, and your gut says No right now. I was approached for a full time job in my field a few years ago. I really wasn't sure about leaving freelancing, but they liked me, the work seemed interesting, and the money was awesome. But it was also a terrifically high pressure job and I didn't feel up to it, so I declined. They came back to me a couple of years later and tried again to hire me in a very similar role that was less pressure-filled. I really liked everyone I met. It seemed like a wonderful place to work. But I still didn't want a full time job on site. This time I took DarlingBri's great approach: Can we make this a contract position with some flexibility? Can we make this 60% full time job with the ability to take on a small number of other clients? After some back and forth, they finally said no, we'd like to hire you full time -- and with great regret, I had to say no, this isn't a good fit. Again. So as DarlingBri said, go back and ask for exactly what you want. Listen to them, and decide if you are willing to take what they have on offer. If you think you can tough through a few months or a year of full time work that will give you money and freedom, great, but it is perfectly OK to look for some of the other opportunities you mention in the close of your question. Good luck!

"Based on our conversation during the interview, I don't think this is a good fit for me. Good luck with the rest of your search." You don't owe these people anything, and it's unlikely that they rescinded the other offer yet -- they would have just hemmed and hawed and delayed the other person.

You tell them you need a month or two of flex time to wind down your freelance clients, and that you don't work more than 40 hours per week, and that the money they're offering isn't enough. In other words, tell them what you need to take the job. Negotiate.

You always have the right to say no. "After some consideration I have decided this opportunity is not the right fit for me at time. Best wishes."

If it helps you to feel better, for them to turn on a dime and hire you instead of their initial choice shows that they are desperate, and desperation causes companies to heap a ton of awful responsibilities on people who aren't qualified to handle them all alone. It doesn't sound like an opportunity to be excited about. I went through a similar process recently (liked the job, but didn't love it) and ultimately told them, "Sorry, but I've decided to purse another opportunity." As kind as they were in the interviews, I didn't hear a word from them after I sent that email. Not very nice after all, eh? All you have to do is say "thanks, but I can't" and the situation will handle itself.

I'm in the camp that if you're not feeling up to building a consulting business, and given that "insurance is expensive and so is therapy. I'm running out my savings account and I'm starting to get worried," then taking this job while you get your depression under control could be a good move. You can tell them you have standing appointments and negotiate a salary that feels appropriate. (This is speaking as someone who found a full time job a huge relief after consulting when I was mildly depressed.)