1. What are the terms of the original written contract (e.g., hours per week, hours total, deliverables due, date for completion, etc)?
2. Are there verbal expectations set forth between you and the client outside the written contract?
3. When do you expect to finish the low paying project? Do you have 40 hours remaining or 400?
2. I gave them an estimate of 6 six weeks (we're in the 5th)
3. Probably around 200, but I have no idea how stringent their QA is.
In addition to the options you say you've considered, you could also consider repaying/taking no compensation for the first job, in order to pursue the second. In that case, they would be out nothing, and you would be free to pursue the other work, if you thought it was more rewarding.
Tough spot to be in. Good luck.
Well, say goodbye to your next 12 weekends. ;-)
On a more serious note, this is actually one of the better dilemmas to be in - others are seeking contracts and you have two. Just be open to both companies, tell them about your problem and you guys will find a way. Unless you try to cheat on one or another I don't see anything unethical about your situation - just an unfortunate coincidence.
Ideally you'll be in for a busy 3 months - but you'll get out of it with a load of cash and a well-paying, remaining contract in your pocket. What more could you want nowadays?