I’ve been wondering about this myself, because I just started setting up an Etsy shop to sell some of my mom’s stuff (she knits adorable baby hats in her free time).
From what I can tell, you can do really well selling stuff on Etsy if you’re willing to take the time to market your shop. As @dynamicduo pointed out, Etsy has a lot of forums and groups you can join that will help you get your name out there – and if you find other ways to market (spreading the word through friends, putting links to the store on other websites you have a connection to), you can get a lot of traffic.
Once you’ve got the people coming, Etsy seems like the best deal out there – their listing fees and commission are both very low, compared to other sites, so your net profits are comparatively high. I think it can definitely work, but you have to make it work – creating a store won’t automatically get you sales…
I’ll keep you posted on how my mom’s store goes, if you’re interested. And if you do set up your own store, make sure you tell us flutherers – we’re a great way to get the word out to a lot of people! ;)