I have stuff listed on Etsy (not that it ever sells! ).
I originally started on Etsy doing custom work (through a service they had called "Alchemy" that allowed people to bid on projects) and kept listing stuff since it doesn't cost much. I have sold enough stuff on (Etsy or privately) to cover my quilting habit and feel like my hobby is not a drain on the family finances. I enjoy the process of quilting and do not feel that I am undervalued when I am getting $1/hour because I am doing it for fun and I am doing it from home (no additional overhead) and only when I want to. When I take commissions I charge a flat fee for the project plus the cost of materials.
I think we crafters have flooded our markets, or perhaps just added to the flood already in progress from China. As the economy went south (and places like Antiques Roadshow showed quilts being worth gazillions of dollars) crafters decided to try to bring in some pin money by selling, so there were many many more handmade items available. As the population ages more and more handmade old quilts are coming onto the market as well, as modern families realize that they cannot stuff everything their parents owned into their (already overstuffed) homes. I agree with the previous poster's comments about there just being too much stuff around - when families used to have two or three handmade quilts per generation they valued them; now they get a new "handmade" quilt every time they change the color of the spare bedroom.
I will be in a craft fair in a month that tries to have more quirky and unusual stuff in it. I will be pricing my items as they would be priced in Crate and Barrel or Williams and Sonoma. Most will be items that get used (like placemats) or are small (like wallhangings), hoping that they will spark people's interest in getting something custom done. This is still underpricing if you are aiming for a living wage...but will probably still price me out of the market! We'll see, and I'll let you know how it goes.
Another point is that all of my friends know that I quilt. Whenever they have leftover fabric from any sewing project they tend to give it to me, because they know eventually it will be made into something and not just languish in a closet. This fabric is free, to me!
Hope this doesn't sound too much like a rant; it isn't intended to be!
Alison