The idea that Madoff was flexibly switching back and forth among his scams makes a lot of sense. It`s hard to keep a Ponzi scheme going for years, and it`s hard to avoid being caught front-running because it`s such an obvious gag. So, you do a little front-running to get the Ponzi scheme going, turn it off before the SEC gets around to checking, turn it back on when you need to get through a tough stretch with your Ponzi scheme, etc. Further, having a well-known opportunity to front-run as a market maker serves as great advertising among your sophisticated investors who assume your too-good-to-be true returns coming from cheating outsiders, not from cheating the insiders.
Why confess only to the Ponzi scheme? Well, that probably helps limit the number of family members who go to prison.