Is it smart to release a small project as free and open-source to display my abilities as a programmer.
I don't mean that in a "Hey, look at me, I'm awesome!" way.
I mean it in a "This is the quality of work you can expect out of me." way.
Pricing Software Open Source Free
Releasing a product as open source is a great way to get people interested in it and using it. If you do the right open source licensing you can always offer a Pro version later. Or, make money of consulting services, or hosting it.
If you don't have a lot of examples of work you have done then yes, an open source project can be a great credibility builder.
I wouldn't personally look up your open source work to see your quality if I was looking to purchase/subscribe to one of your apps. I would make the decision based soley on the app I am interested in. With that in mind, I wouldn't do an open source project for the purpose of credibility in my commercial app.
I think people too often underestimate themselves or the ability to make something of value and sell it. Just make a good product and put it for sale, you don't need to justify or build credentials about yourself, let the product speak for itself.